Elite university degree no guarantee of higher salary

The world’s top universities attract more students – and reject more student applications – than their lesser counterparts in almost every country across the globe. But Australian evidence suggests the pay-off in money terms is not as great as the students who gain access expect.

An investigation by a team of researchers at the universities of New South Wales, Macquarie and Monash found that the status of attending an ‘elite’ university does not translate into higher starting salaries for the graduates.

Massimiliano Tani, Chris Heaton and David Carroll say that conventional wisdom and economic theory support a link between the characteristics of a university and their students’ employment outcomes.

But, as they point out, the measurement of this effect is not straightforward.

A nation’s top universities generally have more favourable student-to-staff ratios, better qualified staff, superior research outcomes, and better placement in university rankings compared to less well-known institutions.

This means the competition among students for a place in these institutions is fierce – especially involving high status professions such as medicine and law.

Prospective students compete for university places on the basis of their own past academic performance. So, the team says, any apparent earnings bonus enjoyed by the graduates of supposedly ‘better-quality universities’ may simply be the result of those universities recruiting more able students.

The researchers also note that the characteristics of these students, including their better academic performances at school, should make them more likely to be higher paid wherever they studied.

That is, maybe it’s the students who are ‘better quality’, rather than the university!

In a paper published in a journal of the German IZA Institute of Labor Economics, the researchers describe how they investigated whether young graduates from Australia’s top ‘Group of Eight’ (Go8) universities earned more on average in their first full-time job than those from other universities.

Drawing on a range of sources of information about employment rates and the salaries of new graduates, they also checked whether any such higher earnings were a result of the Go8 universities recruiting ‘better’ students.

Although the results did reveal statistically significant variations in average starting salaries among the graduates from different universities, the sums involved were only small.

In addition, the extra amounts enjoyed by Go8 graduates were even smaller when the researchers controlled for differences in the mix of fields studied; the geographical regions in which graduates worked; and the ‘quality’ of the students recruited.

The team concluded that attending an elite university appeared to play a comparatively small role in determining a student’s starting salary, at least relative to other factors.

So why, given the superior characteristics of the top universities, are the salary benefits their graduates obtain so small?

The researchers suggest three plausible explanations:
  • • The quality of undergraduate teaching is more similar across Australian universities than is implied by their characteristics.

  • • Faculty qualifications and student-to-staff ratios are not as important to students developing knowledge and skills as is normally assumed. A top university with a large share of academic staff with PhDs may contribute to an institution’s research output but not to “the formation of productive knowledge in young undergraduates”.

  • • Or, employers don’t use the university a young graduate attended as a key factor when making employment decisions.
As is no doubt true in many other countries, the researchers say choosing a university is a key decision for many young Australians. So it is important they are provided with relevant information to help them make this choice.

“A set of indicators that measure the effect of university choice on employment outcomes, regardless of the background and characteristics of the students, might help them make better decisions,” they say.

And they note that indicators of this type aimed at helping students make a choice are already produced for American colleges.

They point to one produced by the Brookings Institution in a report called Beyond College Rankings: A value-added approach to assessing two- and four-year schools.