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The link between education and income unwrapped

Stephen Koukoulas
The link between education and income unwrapped

It’s back to school week for thousands of children around Australia.

Let’s celebrate the fact that at the end of this year of learning for all children, from kindergarten to year 12, students will be better placed in life because of that education and learning. It will also be good for the economy as the link between educational attainment, unemployment and income is irrefutable.

This year of learning does not mean that all of our children are on a path to become rocket scientists, medical researchers or actuaries. A good education system will ensure that every student reaches their full capacity and opportunity, including knowing how to read, write and add up, and having a mind set that allows them to be flexible within the ever-changing work place environment.

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The recent Melbourne University Household Income and Labour Dynamics survey dug into the Australian experience of education and incomes. Its findings were stunning.

For women, for example, a diploma or higher educational attainment saw a 10 percentage point increase in the probability of full time employment compared with maximum educational attainment of Year 11 and below.

Linked to that was the finding that, compared to the people who had a maximum educational attainment of Year 11, a master’s degree or doctorate increased an individual’s earnings by 47.1 per cent for men and 42.1 per cent for women; a graduate diploma increased earnings by 44.5 per cent for men and 34.8 per cent for women; and even finishing Year 12 saw incomes rise by 18.6 per cent for men and 14.5 per cent for women.

Every additional increment of schooling, technical training and university adds significantly to an individual’s earnings and with that, the performance of the economy. Any government policy that undermines educational attainment through spending cuts or allocating funding away from the most needy areas is not only damaging to the future well being of many people, it also damages the economy.

Countries whose citizens have the highest literacy, numeracy and general educational levels are the richest with all the benefits that brings to society. According to OECD data, Australians have an average of just under 12 years of schooling per person, and an average per capita income of US$60,000. In Sweden, where there is an average of 12 years of schooling, average income is just under US$60,000 per capita. Taking the opposite, say Senegal and Burundi, average schooling is around 3 years only and average annual income per capita is well under US$1,000.

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These are extremes, to be sure, but they illustrate the point quite clearly.

A study in the United States by the Bureau of Labor Statistics also found that the higher the level of educational attainment, the higher the income. Importantly, it also found that those with higher education were less likely to be unemployed. Those with a bachelor’s degree faced an unemployment rate of 2.8 per cent; those with a high school diploma (the equivalent of finishing year 12 in Australia) faced an unemployment of 5.4 per cent while that who had less than a high school diploma had an unemployment rate of 8.0 per cent.

It should be obvious that education is a driver of an individual’s income, but also it indicates the likelihood of unemployment. Education is a major driver of the overall economy with well trained and highly skilled workers doing jobs that are well paid, high in productivity and that boost living standards for all.