The impact of increasing educational levels on the Australian workforce

Abstract

Education levels in the workforce have increased very substantially over the last two decades. This thesis looks at factors lying behind this increase and the impact it has had on the workforce. Part I looks at whether the increase in education levels can be attributed to demand factors or whether supply factors are important. We first look at shifts in labour demand and find that, based on movements in relative earnings, there have been sizeable shifts in labour demand toward the better educated. We then move to the supply side and look in some detail at increases in school retention. We find that, in addition to shifts in labour demand toward the better educated, there have been a number of factors which have encouraged school retention. These include a decline in the number of full-time jobs available to teenagers, increases in student allowances and sharp increases in unemployment. Part II looks at the link between education, productivity and earnings. First, it discusses the human capital and screening debate. This debate is important because the notion that increased education levels will contribute to an increase in the productivity of the workforce is tenuous, unless education affects earnings by augmenting productivity. The empirical literature does not convincingly differentiate between the two approaches. We then look at 'ability bias' and consider whether ignoring innate ability (and family background) leads to an overstatement in the return to education. Overseas evidence, on the whole, suggests that this is the case to some extent. We find a similar result for Australia, based on a sample of 30 year olds from the Youth in Transition Study. We use growth accounting methodology to estimate the contribution of changes in education levels to economic growth since the late 1960s. The estimates incorporate an allowance for ability bias (based on the Youth in Transition findings noted above). We find that increases in education levels explain about a quarter of the increase in multifactor productivity between 1968-69 and 1989-90. We also discuss the role of education in the new endogenous growth theory. Part ill of the thesis considers the impact of increases in education levels on particular groups. We first look on the impact on women relative to men. Women's education levels have increased more than men's and this has had a beneficial effect on both the relative earnings and occupational status of women working full time. Women and men tend to be concentrated in different fields of study, with women tending to be in the least remunerative fields . Moreover, this educational segregation has not declined (at least in the 1980s). We look at whether the gender earnings gap would decrease if women moved into non-traditional fields. We do not find this to be the case because the relative value of fields differs between men and women. This finding poses a challenge to policies directed toward lessening the gender earnings differential. Finally, we look at whether the increase in education levels has been associated with an increase in the equality of educational opportunity across family background. Using data from a number of sources (the Youth in Transition Study, the 1973 Social Mobility Survey and the 1989-90 National Social Science Survey) we find there is no evidence to suggest that the increase in education levels has moved us closer to equality of opportunity. Show more