Higher Education Still Pays Off in Jobs and Earnings, OECD Report Says

October 17, 2022

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Higher Education Still Pays Off in Jobs and Earnings, OECD Report Says — Higher education still leads to better labour-market outcomes, says the OECD’s latest Education at a Glance report. (Photo: Shutterstock).

Amid increased educational attainment in recent decades and reports about rising unemployment among university graduates, the OECD latest Education at a Glance report affirms that higher education still leads to better labour-market outcomes.

“Obtaining a tertiary degree is still the most promising pathway to a good job,” says the report, “Education at a Glance 2022: OECD Indicators”, which was published this month by the Organisation for Economic Co-operation and Development (OECD).

The report notes some problem areas, however, including low degree completion rates, a potential mismatch between graduates’ skills and the skills employers are looking for, and the need for more public support of non-degree paths to good jobs, such as vocational education and training (VET).

The OECD’s annual Education at a Glance reports look at education spending, access and outcomes, and the impact of education on earnings and chances of employment. This year’s report focuses on tertiary education, which includes universities, colleges and technical training centres. It analyses an array of education indicators in the OECD’s 38 member countries, which are primarily advanced industrialised economies, plus seven additional countries. The latter group includes Saudi Arabia, the only Arab country represented in the report.

A Surge in Tertiary Educational Attainment

In the past two decades, the growing need for advanced skills in labour markets has pushed more young adults to get advanced qualifications across OECD countries, with about 48 percent of young adults ages 25 to 34 holding a tertiary degree in 2021, compared to just 27 percent in 2000, says the report.

The earnings advantage increases at higher levels of tertiary attainment. Graduates with a bachelor’s degree earned 44 percent more than those with only a high school diploma in 2020, and those with a master’s or doctoral degree earned 88 percent more.

This surge in tertiary education students led to growing diversity in their socio-economic and educational backgrounds, which necessitates a more diverse tertiary education too, Mathias Cormann, the OECD’s secretary-general, notes in a foreword to the report and a separate editorial.

“Models of tertiary education that worked when only a small share of each cohort entered university – often those from privileged backgrounds – will no longer be adequate when more than half of young adults are obtaining tertiary degrees,” Cormann writes. “Tertiary education systems must be prepared for students looking for new skills at various stages of their careers.”

The report revealed that tertiary education is now the most common attainment level among 25- to 34-year-olds. If current trends continue, tertiary education will be the most common educational level among all working-age adults across the OECD within a few years.

The surge in tertiary attainment was especially strong among women, who now make up a majority of young adults with a bachelor’s, master’s, or doctoral degrees, at 57 percent, compared to 43 percent for their male peers in every OECD country except Japan.

Better Employability and Income

The report found that greater educational attainment yields better earnings, and this holds true for higher levels of tertiary attainment in most countries. In 2021, the average unemployment rate for individuals with tertiary attainment was 4 percent, compared to 6 percent for those with upper secondary attainment only and 11 percent for those with less than upper secondary attainment.

Likewise, full-time workers with tertiary attainment earned on average approximately 50 percent more than workers with upper secondary attainment only, and nearly twice as much as workers with less than upper secondary attainment.

On average across the OECD, full-time full-year workers who attained short-cycle tertiary education earned 20 percent more than those with upper secondary attainment in 2020. Short-cycle tertiary education includes programmes that typically last two years or more and provide occupation-specific training that prepares graduates to enter the labour market directly.

“Models of tertiary education that worked when only a small share of each cohort entered university … will no longer be adequate when more than half of young adults are obtaining tertiary degrees. Tertiary education systems must be prepared for students looking for new skills at various stages of their careers.”

The earnings advantage increases to 44 percent among those who attained a bachelor’s or the equivalent and to 88 percent among those with a master’s or doctoral degree.

Among tertiary-educated workers, those with a medical or dental degree or with a degree in science, technology, engineering and mathematics (the STEM fields) enjoy the highest earnings advantages.

Across OECD countries, employment rates are highest among tertiary-educated individuals who studied information and communication technologies (ICT), and lowest among those who studied the arts and humanities, social sciences, and journalism. However, even the latter have higher employment rates than their peers with less than tertiary attainment.

The report revealed that women, despite their gains in educational attainment, are still under-represented in the STEM fields and over-represented in the fields of health and welfare and education across all tertiary levels.

Moreover, the Covid-19 pandemic, like in the aftermath of the 2008 financial crisis, demonstrated that education is one of the best protections against economic risks. The report revealed that during the peak of the pandemic, unemployment increased much more for those with less than upper secondary attainment than for those with tertiary attainment.

Despite the benefits of obtaining a tertiary degree, many tertiary students do not complete their programmes of study, warns the report. “Only 39% of bachelor’s students graduate within the expected timeframe for their programme. Three years after the expected end date of the programme, the completion rate has risen, but only to 68%,” said the report. “Completion rates are particularly low among men in all OECD countries.”

Education-to-Work Transition

Schooling length and quality, labour-market conditions, the economic environment and the cultural context all have an impact on individuals’ transition from education to work, says the report.

In 2021, around one-third of OECD students combined their education or training with some form of employment. In a few countries (e.g. Germany and Switzerland), such employment tends to be linked to the study programme, while in most others students’ jobs are mostly unconnected to the curriculum.

When labour-market conditions are unfavourable, young people have an incentive to stay in education longer, because high unemployment rates drive down the opportunity costs of education, and they can develop their skills for when the situation improves.

To improve the transition from education to work, regardless of the economic climate, the report suggests that education systems should aim to ensure that individuals have the skills the labour market needs.

“As labour markets change, these approaches will be important to prevent young graduates from struggling to find good jobs even as employers cannot find people with the skills they need.”

The report recommends providing public support to potential employers, through the creation of incentives to hire young people. “Not having a job can have long-lasting consequences, especially when people experience long spells of unemployment or inactivity and become discouraged,” says the report.

Emerging Labour-Market Skills

Since modern economies need highly skilled workers, the job prospects for adults with lower levels of qualifications are more challenging.

In the coming years, unskilled workers will face a greater risk of unemployment, as many of them work in jobs that could be automated soon. “It is estimated that 14% of existing jobs could disappear as a result of automation in the next 15-20 years, and another 32% are likely to change radically as individual tasks are automated,” says the report.

Education systems need to respond to current and future labour-market challenges by exploring the types of qualifications demanded by employers and anticipating how their countries’ economies may evolve, suggests the report.

“Micro-credentials offer a promising approach to give students greater ownership over what they learn, how they learn, and where they learn,” Cormann writes in his introductory editorial. “As labour markets change, these approaches will be important to prevent young graduates from struggling to find good jobs even as employers cannot find people with the skills they need.”

Cormann notes with concern that “the general increase in tertiary attainment may have led employers to expect a tertiary degree as the new normal,” even for jobs that traditionally have not required a degree.

“Vocational upper secondary programmes that can compete with tertiary education in terms of quality and labour-market outcomes are important, but they remain rare,” he writes. “Making VET (vocational education and training) a first choice rather than a last resort for students requires new links between upper secondary VET and professional tertiary education to give VET graduates the opportunity to obtain additional qualifications at a later stage.”