Is education worth it? Higher minimum wage cuts the value of further study

Tradespeople such as carpentry apprentice Dan Andresen, pictured (left) with boss Ross Faulkner, earn the highest cumulative incomes of any group in the nine years after leaving school. Photo / File

Higher minimum wages have made it less worthwhile to get an education, a new study says.

The Ministry of Education study shows that your future income will still be higher if you get a degree - but the relative advantage of a degree is shrinking.

This is partly because of educational inflation - a lot more people are getting degrees, so the relative advantage of getting one over someone else is reducing.

But it also reflects big increases in the minimum wage, which have lifted the incomes of people with no qualifications faster than average wages, so incomes have become more equal.

FLIGHTS

After adjusting for inflation, median hourly incomes have increased by about 15 per cent in real terms from 1998 to 2018 for workers aged 25 to 34 with no qualifications, compared with real increases of 10 per cent for workers with school qualifications and only 8 per cent for workers with degrees.

"This is likely to reflect progressive increases in the national minimum wage," the study says.

After adjusting for inflation, the adult minimum wage jumped by 57 per cent in real terms in the same period, from $10.50 in 1997 to $16.50 in 2018 expressed in 2018 dollars.

The latest study, one of a series which the ministry has published, confirms that the financial advantage of tertiary education in New Zealand is one of the lowest in the 37-nation Organisation for Economic Cooperation and Development (OECD).

"New Zealanders with a diploma or higher earn around 32 per cent more than their counterparts with only an upper secondary education, whereas this difference is 56 per cent across the OECD," it says.

However the financial advantages of tertiary education in New Zealand are similar to Australia and the Nordic countries and "suggest that New Zealand has a narrower spread of incomes relative to the OECD average".

The latest study finds that the 2018 average incomes of New Zealanders who left school in 2009 and were working in NZ in 2018 were:

• $38,400 for those who left school with no qualifications (11 per cent of 2009 school-leavers).

• $43,400 for those who left with level 1 of the National Certificate of Educational Achievement, NCEA (6 per cent).

• $46,400 for those who left with NCEA level 2 (8 per cent).

• $47,700 for those who left with NCEA level 3 but not University Entrance (1 per cent).

• $57,000 for those who left with University Entrance (7 per cent).

• $43,600 for those with post-school qualifications at the same level as NCEA level 1 and 2 (5 per cent).

• $44,900 for those with post-school qualifications at the same level as NCEA level 3 (9 per cent).

• $51,500 for those with level 4 qualifications, including most trades (14 per cent).

• $46,900 for those with diplomas (7 per cent).

• $58,200 for those with degrees or higher (30 per cent).

After allowing for the years that students took out of the workforce to study, those with level 4 trades certificates actually earned more cumulatively over the nine years to 2018 than any other group - a cumulative $286,600, slightly more than those who left with UE ($281,300) and well ahead of those with degrees ($233,800).

However the annual incomes of those with degrees overtook the trades workers in 2016, seven years after leaving school and four years after most completed their degrees.

"Based on existing data and labour market conditions, it might take 12 years for the cumulative earnings of a school-leaver choosing to do a degree to overtake those of their peers who did a level 4 certificate instead," the study says.

The financial advantage of a degree varied widely by subject. Predictably, by 2016, young medical graduates earned the highest incomes averaging $118,000.

Average earnings in other fields included $65,000 for both law and computer science, $64,000 for accounting, $63,000 for mechanical engineering, $52,000 for teaching, $46,000 for graphics and design and $42,000 for performing arts. The average for all bachelor's graduates was $55,000.

Overall, one in three people with degrees earned less than the median income of people with only school qualifications.

On average, women still earn less than men at every level of qualifications. The median hourly gender pay gap aged 25-34 is smallest for those with only school qualifications (10 per cent), and actually widens to about 18 per cent for those with degrees or higher - a pattern that has persisted throughout the past 20 years.

Māori and Pacific workers aged 25-34 with only school qualifications also average 10 per cent lower hourly incomes than similarly-qualified European workers, and the ethnic pay gap remains at about 10 per cent for those with degrees.

"While Māori and Pacific workers earn, on average, 10 per cent less than European workers, the relative wage gain for getting a degree looks to be similar for all three groups (i.e. around 25 to 30 per cent)."