Report

The Graduate Effect of Higher Education Spillovers – The case of Australia

The Australian economy is undergoing a major transition. A shift is underway from the mining construction boom era—in which significant resources were applied to the development of our natural resources— to a new phase in our history. We are now faced with the challenge of diversifying our economy and seizing new opportunities through innovation, entrepreneurship and greater integration within our region. The development of our human capital—the skills and smarts of our people—is now a crucial element of Australia’s economic development into the future.

Higher education plays a critical role in developing Australia’s human capital. The ability of our nation to expand the knowledge and skills of our workforce to drive productivity growth is vital if Australia is to raise living standards into the future. While the private benefits of higher education have been well documented, minimal attention has been paid to the associated spillover benefits of higher education to other parts of the workforce and the Australian community.

To fill this knowledge gap, this report estimates the benefits to the wider economy and to workers without a degree when new higher education graduates enter the Australian workforce.

The analysis is based on an application of a computable general equilibrium (CGE) model. The Cadence Economics General Equilibrium Model (CEGEM) is of a genre of economic models that are used extensively by the Australian Government to assess the economy-wide impacts of major policy changes and economic developments. For example, the Commonwealth Treasury undertook a series of assessments of the economic impacts of climate change response policies using CGE models in the early 2000s. The Productivity Commission has also used CGE modelling to consider the impact of economic reforms.

In spite of the obvious advantages of CGE models, which contain all the linkages between employment, tax and consumption, they have not been widely used to capture the spillover effects from new graduates entering the workforce. This report provides a powerful new insight into the positive effects of new university graduates on Australia’s jobs, wages and economic growth.

The estimated spillover benefits

The growth in economic activity generated by graduates entering the workforce improves the employment prospects for other parts of the labour market. Higher levels of economic activity and income increase the demand for retail services and, therefore, demand for employment in that industry—including for those people without degrees. In addition, at the industry level, having access to a more productive workforce of those with university degrees improves the competitiveness of Australian industry. This increased competitiveness will increase output and employment in these industries, including the demand for those without university degrees. For example, access to employees with degrees can greatly improve the competitiveness of our traditional exporters such as agriculture and mining. As these sectors expand, there would be a corresponding increase in demand for employees without university degrees.

The positive effects of new university graduates are seen not only in the creation of new jobs for those without university degrees but also in their wages, as well as the overall employment and economic growth of the nation.

Capture d’écran 2016-05-18 à 09.28.42

Jobs

  •   For every 1,000 university graduates entering the workforce, 120 new jobs are created for people without a university degree.
  •   In 2014–15, the effect of new graduates entering the Australian workforce created 25,000 new jobs for people without a university degree.The spillover employment benefits for those without a university degree are spread across a range of jobs and industries. Tradespeople, managers, machinery drivers, labourers and administrative workers benefit the most from graduates entering the workforce. For example, an additional 8,064 technicians and trades workers found jobs in 2014–15 because of new university graduates entering the Australian workforce. An additional 4,383 labourers found jobs for the same reason.

Wages

  •   In 2014–15, the wages of workers without a university degree rose by $4.8 billion due to new university graduates entering the Australian workforce.
  •   This equates to a weekly wage increase of $12.60 in 2014–15—or $655 a year—for workers without a university degree due to the spillover benefits of university education.
  •   The estimated wage increase is 1.12 per cent. This is comparable with earlier research by Moretti (2004) which was based on analysis of US data.

Growth

  •   Without new university graduates entering the workforce, the growth rate in employment for those without a university degree would have been zero over the last eight years.
  •   University graduates account for almost 90 per cent of Australia’s jobs growth over the last eight years.
  •   In 2014–15, skilled graduates entering the Australian workforce grew the nation’s economic activity by $26.4 billion (as measured by GDP).
  •   Every graduate entering the workforce increases Australian GDP by $124,450.
  •   Due to higher economic activity driven by new university graduates entering the Australian workforce, government revenue increased by approximately $5.1 billion in 2014–15.

Chosen excerpts by Job Market Monitor. Read the whole story at  The graduate effect: higher education spillovers to the Australian workforce

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