Does New Zealand need so many young people studying for a degree?
Is it in the interest of New Zealand, and the students themselves, to have so many graduates?
At the end of August this year, the UK’s Daily Telegraph published an article by Roger Bootle (chairman of Capital Economics, an independent macroeconomic research consultancy), arguing that many parents and employers overrate university, and that many professions could thrive without degrees. It also argued that the number of graduates from UK universities should be reduced by half to boost the economy.
The logic of the argument was that, contrary to conventional wisdom, increasing the number of graduates doesn’t actually increase productivity. Moreover, sending young people to university is an expensive way of developing them. Further still, sending young people to university keeps them out of the labour force, depleting it of skills.
On top of all this, the article argued that going to university does not necessarily provide the student with maturity or life skills they need. And it burdens many of the students with an unpayable student loan debt in return for an academically dubious and impractical degree.
Approximately 40 percent of NZ school leavers go straight into studying for a degree. 50 years ago, it was 15 percent.
Could the same sort of arguments be applied to the New Zealand context? Yes, they could.
Approximately 40 percent of New Zealand’s 60,000, or so, school leavers each year go straight into studying for a degree, or do so after taking a gap year. The equivalent proportion 50 years ago was around 15 percent. But this dramatic increase has not been matched with a corresponding growth in productivity. New Zealand’s record of productivity increases over the longer term has been poor, compared to many other developed countries, and this is why New Zealanders have relatively low wages and salaries.
At the same time, shortages of skilled labour have persisted. At times, the shortages have become critical, just as they have now.
Student fees cover less than a quarter of the cost of delivering a degree.
Providing degree level education is hugely costly. The average cost of delivering a three year degree course is around $80,000, while the average fees the student will pay is less than a quarter of this, allowing for the fees-free first year. The balance is made up by the tax payer. In addition, many students will receive a student allowance and will incur a debt they might not be able to repay, if their degree doesn’t provide a gateway into reasonably well-paid employment.
By comparison, apprenticeships also require support from the taxpayer, but not nearly to the same extent that degree courses require. Apprentices typically earn wages from day one of their training, and this means that they become net contributors at an early stage.
Gaining a degree was once a passport to relatively well-paid employment, but this is no longer necessarily the case. In 2019, BERL completed research, for the now disbanded Industry Training Federation, which examined the cumulative earnings and wealth of matched sets of people who had studied for a degree and people who had completed an apprenticeship.
The research was based on real earnings data of real people who had left school with at least an NCEA Level 2 qualification. The research compared people who had studied for a BSc with people who had completed a technical apprenticeship. Similarly, it compared people who had studied for a BCom with people who had completed a commerce-related apprenticeship. And it compared people who had studied for a BA with people who had completed some ‘Other’ (i.e. not technical or commerce-related) apprenticeship.
Degree holders start to catch-up with apprentices, in terms of earnings and wealth, but only after several decades.
The research found that, 15 years after starting their studies or training, people who had completed a technical apprenticeship had significantly greater cumulative earnings than those who had gained a BSc. Likewise, people who had completed an Other apprenticeship had greater cumulative earnings than people who had gained a BA. By contrast, people who had completed a BCom had greater cumulative earnings than commerce-related apprentices. Overall, the degree holders did start to catch-up and overtake the apprentices, in terms of earnings, but only after several decades.
The research also found that, because they had a head start in terms of earnings and, hence the ability to buy a house, the wealth of the degree holders (based on a few simple modelling assumptions) took around 20 years for the Commerce and Arts graduates to catch up with the wealth of their counterparts who had completed an apprenticeship. Strikingly, the modelled wealth of the Science degree holders showed no signs of catching up with the wealth of the people who had completed a technical apprenticeship. In brief, the apprentices had a wealth advantage because they were able to become property owners earlier than the graduates.
It is not necessary to choose between a degree and an apprenticeship. More and more people are doing both over the course of their lives.
Therefore, both from the perspective of the economy, and from the perspective of the individual, there looks to be a strong case for encouraging more young people to enter apprenticeship training, instead of studying for a degree. However, there is not necessarily a need to choose either one or the other. It will almost certainly be 50 years, or more, before today’s school leaver will be eligible for superannuation, and many of them will be able, at some stage in their career, to complete an apprenticeship and then study for a degree, or vice versa. In fact, record numbers of people are doing precisely that.