Course non-completion and multiple qualifications Re-estimating the returns to education in Australia

Abstract

Among Australian studies estimating returns to education, there is a consensus that education is a highly profitable investment.  Conventional estimates of returns to education examine earnings conditional upon individuals’ years of education, with years spent in education typically inferred from their highest qualification attained. However, this approach underestimates the actual time individuals may have spent in education as it ignores multiple qualifications obtained and time spent towards qualifications that were not completed. Using 2001-2019 panel data from the Household, Income and Labour Dynamics in Australia (HILDA) survey supplemented by several Australian Bureau of Statistics sources, we estimate the sensitivity of estimates of the returns to education from a standard wage equation to the inclusion of course non-completion and multiple qualifications. Taking account of these sources of mismeasurement, we estimate the wage premium associated with each additional year of education to be 5.5 per cent, as opposed to 6.5 per cent using the conventional approach, or around 15 per cent lower. These differences are similar by gender and broad age group. We find unaccounted for years spent accruing multiple qualifications to be the main source of overestimation of the returns to education, although we note the lack of individual-level data on incomplete qualifications may have mitigated against identifying a larger effect of accounting for this source of mismeasurement.