For years this site has argued that the uncapping of university places, allowing universities to recruit as many students as they can fit in order to accumulate HELP/HECS funding, has killed education standards and devalued the worth of a university degree.
The problem is accentuated by the proliferation of international students, whereby degrees are sold to maximise profit at the expense of dumbed-down standards, with foreign students also enticed with the prospect of gaining permanent residency once they finish their courses, thus maintaining the population ponzi.
The more people that have a degree, the more this becomes a basic expectation for employers, leaving those without one further behind. Meanwhile, those that do obtain a degree are experiencing a gradual diminution in their pay, with graduate starting salaries for bachelor degree graduates deteriorating steadily since the 1970s, commensurate with the rise in university participation:
Whereas employment outcomes for full-time graduates “have been getting worse”, according to the Productivity Commission:
Today, Brian Redican – chief economist at the NSW Treasury Corporation – has penned an enlightening article in The AFR claiming that the explosion in university degrees is holding down wages, as is the explosion in ‘skilled’ migrants:
The head of research at a major bank confided to me recently that he would be lucky to get an interview if applying for a graduate job with his employer today. A serious candidate, he bemoaned, would not only need at least an honours degree, but preferably would also have represented Australia at the Olympics, established a start-up, be fluent in Mandarin and computer coding, and spent their holidays volunteering in a developing country.
He was exaggerating but there is a kernel of truth in what he said, and it goes to one of the great economic mysteries of our time: why is wage growth so stubbornly weak in the face of strong employment?
There are more well-qualified graduates today than ever before. The increase in Australia’s immigration intake is part of the reason. Over the 20 years to 2005, annual net overseas migration was around 100,000 people; in the year to March 2017, it was 232,000. And the composition of the intake has shifted, away from humanitarian and family reunion categories and toward economic migrants who are ready to work.
Australian-born Millennials are also much better educated than previous generations. For example, today 45 per cent of women in their late 20s have a university degree compared to only 12 per cent in the early 1990s…
This better-educated population has surprising implications for the labour market. For one, there is now much more competition for good jobs. Since 2004 total employment has risen by 30 per cent, but the number of tertiary-qualified people entering the labour force has increased by more than 90 per cent. There are now three times as many graduates for each role as there was in 2004. And as any fruiterer knows, when there is a surge in supply, prices fall.
Herein could lie the answer to the slow-wage-growth mystery. Wages are a function of supply and demand…
The combination of strong employment and subdued wages is consistent with a rapid uplift in labour supply. With so many highly qualified graduates after the same job, employers have less incentive to compete by offering higher starting salaries…
All of this suggests we should be able to sustain unemployment rates at much lower levels today before a wages breakout is triggered…
Today’s university leavers graduate with a high debt burden and into an increasingly competitive job market. They can expect relatively stagnant growth in wages and dare not think about buying a house. Getting ahead looks harder than it did 20 years ago, and this must surely affect their economic decisions. Suddenly, low wages growth looks like just one part of a bigger issue.
I have previously likened Australia’s university system to a form of ‘quantitative easing’, whereby a university degree has lost its value as graduate numbers have exploded, despite the significant cost to both students and the Budget. I have also consistently argued that mass immigration has boosted labour supply, eroded workers’ bargaining power, and help hold down wages.
This excellent analysis by Brian Redican certainly backs up these views.
