Monday, March 04, 2013

Credentialism and the real return on degrees

Tuesday night is tennis, more or less. We can't always do it, people get busy, but its the only time that the three of us can get together as a family. In that sense, it replaces the Sunday roast that was a centre piece of family life while the girls were growing up.Tuesday tennis 2

Both girls have been in the job market, wending their way through the complexities that exist today. Youngest has just landed an officer manager job in a small insolvency practice.

Last Tuesday, eldest and I were talking about her job search. She has the job that she took at a pub to support her way through university. After five years and now as a junior manager, she has expanded her hours to full time. She could continue in that role indefinitely. But she wants a longer term career more akin to her university studies. Youngest's new job has nothing to do with her university studies. She got it because of the other things that she had done and especially her recent contract work.

The early studies in the economics of education looked in part at the differential between full life earnings of people with different levels of education. The gap between graduate earnings and the less qualified was to become a justification for cost recovery measures. The gap also became a policy driver: the income gap shows the gains from more education; if we increase university numbers, society will gain. Increasingly, however, we are running into problems of correlation rather than causation.

Consider this. We create a credentialed system in which an increasing proportion of jobs require a mandated tertiary qualification. Excluding trades, I will come back to this in a moment, the practical effect is that those without degrees are increasingly squeezed into lower paid occupations. The statistical measures of the income differential between degreed and non degreed people continues to show  a positive income differential linked to qualification. However, that differential says nothing about the real economic value of a degree. It's just a reflection of mandated credential creep. More and more graduates end up in lower income activities.

I mentioned trades. I would be interested to see a statistical analysis on this one. I have the strong impression that while the top end of the salary scale of those with degrees remains well above those with trades qualifications, the proportion of the graduate population earning less than the the top trades qualification has been increasing rapidly.

I am not saying that this is a bad thing. I am only saying that you cannot trust the stats without analysis.


Evan said...

Purely anecdotal. I have heard a few academics lament that their tradie sibling is earning more than them.

Jim Belshaw said...

Well, in many cases it could be true!

Winton Bates said...

Credentialism might have the effect you suggest of squeezing those without degrees into lower paying occupations, but it would also tend to devalue qualifications. If more and more graduates end up in lower income activities, that would tend to lower the calculated rate of return on higher education.

It is difficult at the moment to know whether we are entering a period of longer term over-supply of qualified graduates in a wider range of fields, or whether growth in demand will resume as the world economy improves.

Jim Belshaw said...

Winton, you have caught the problem. It depends on how you calculate the return. If you compare degree and non degree earnings in a situation where credentialism means that the degreed occupy more and more of the space once occupied by those without degrees, and if income relativities, don't change, then you will show a continuing positive return from a degree. But what does this mean?

In fact, the limited evidence that I have seen suggests that the personal returns from higher education are declining. In the US, for example, I saw some stats (I can't give the link) suggesting that graduate starting salaries were lower now than ten years ago.

There is a compositional issue here, of course. The proportion of the non-degreed workforce receiving very low incomes has increased. This acts to preserve the relativities. But then, as the top cohorts of the non-degreed income range exceed the lower cohorts of the degreed income range, the numbers reverse.

The problem with the question of oversupply of graduates is to know just what it means, how it might be measured.

Noric Dilanchian said...


To put another layer into your interesting post and reader comments, it is my view that graduates need more than ever to be "re-credentialed" soon after they get their tertiary degrees.

Here I'm referring to situations or disciplines where the degree turns out to not be the entry ticket into good money, or as you note, even a job in the studied discipline. I'm seeing more and more evidence of a pattern in physiotherapy and certainly law that those who get into a job in their discipline find after some years that they really need new skills, new offerings, even a whole new framework for marketing their core offering. (The degree was not for them a buy once, use for a lifetime ticket.)

The evidence of the pattern arises for me in recent months as I've done a lot of advisory and innovative business modeling work involving re-credentialing in a health sector field where the tertiary qualification is not producing the results required. My client is in a position to re-credential along the lines I've described. This work took me back to remine a template you and I worked on more than a decade ago for a certain Catholic institution, you'll remember the one.

Extrapolating from the above I would say, as I've often done, that in a time of continuing rapid change in so many things, it should not surprise us that "sure thing" discipline degree are leading for some to underwhelming or deadend careers or at least futures that don't produce the financial returns that might once have been expected.

Jim Belshaw said...

Hi Noric. I do indeed remember that joint client. It was more than a template; there was process as well. I still feel sorry that we weren't able to get better results.

You make a very a very good point indeed, and one that I hadn't sufficiently focused on. If you have to re-credential so quickly, doesn't that imply that the first course should be shorter? That it's purpose needs to be more clearly defined?

So many four year degrees now could, in content terms, be done in less time. Some of the non-degree cert courses are a bit laughable. In terms of the qualifications framework, the thing that stands out is the variation in input time and real standards between courses.

This is perhaps getting me into a different area, but you have started a new chain of thought.