Salaries of young university graduates on a downward trend – appreciation of occupational competence on the increase

A new report by Sitra examines the impact of education on the economy

Media release 9.3.2006

A new report in the Sitra Reports Series, Koulutuksen taloudelliset vaikutukset (‘Economic Impact of Education’), charts the impact of educational investments from the perspectives of the labour market, business and industry and the national economy. The report uses existing data to analyse how investment in education affects economic productivity, growth and income distribution, and what benefits educational investments bring to the individual. The report is compiled by Rita Asplund, Research Director, and Mika Maliranta, Head of Unit, The Research Institute of the Finnish Economy, ETLA.

“The average return on education investment has remained high in Finland, even in international comparison. A higher education is still a good investment for an individual, from the perspectives of both finding employment and higher salary levels and trends,” says Rita Asplund, Research Director, ETLA.

However, the salary advantage of those with a higher university degree, the Master’s degree, has diminished, whether measured by gross earnings or additional earnings ensuing from having a degree. The relative share of employees with a higher university degree has increased rapidly, especially among under 35-year-olds and women, in particular. As a consequence, the “price” of a university-educated employee in the labour market has decreased. The share of highly educated people among all wage earners has become female dominated, but division into male- and female-dominated fields keeps women at lower salaries. This has also led to the increase in income differences among university-educated employees.

All in all, there seems to be a clear trend regarding the impact of education on the economy at an individual level. The labour market position of those with only a basic education has weakened while the appreciation of and demand for vocational qualifications have increased, thus also bringing better salaries. University-educated employees are still in demand, but, compared with previous generations, the growth in their salaries has slowed down and income differences among university-educated employees have increased.

“The salary advantage of people with Master’s degrees in relation to people with a lower education has diminished,” says Rita Asplund.

Education, technology and creative destruction good for the national economy

In terms of the national economy, the report examines the relationship of education and economic growth, technology, income distribution and social return on investment.

The report reveals that the educational attainment of the labour force has an effect on what technologies companies adopt and how efficiently new ones are developed. The closer a national economy is to the international cutting edge of technology, the more emphasis there is on both the role of higher education and the quality of education.

“Economic growth in cutting-edge countries mainly takes place through ‘creative destruction’. The economy is redefined as new technologies replace old ones and new companies and branches replace existing ones. Education facilitates the adoption of new technologies and thereby alleviates the growing pains of structural change,” says Mika Maliranta.

Finnish research shows that highly educated employees significantly improve the productivity of a business. However, improved productivity seems to come after a few years’ delay.

“That time is necessary for developing and deploying new technologies, that is, for the impact of education to show in the company in terms of increased productivity. National wealth and competitive strength are built on companies that improve their productivity,” says Maliranta.

According to Maliranta, there has been quite a lot of research in Finland on the income and productivity impact of education, based on business and company data.

“The economic impact of education manifests itself through several channels; however, there is a paucity of Finnish research regarding some of these. More information is necessary, for instance, on the possible externalities of education in the business sector as well as at the national economy level,” Maliranta concludes.

Further information

Sitra

Vesa-Matti Lahti , Research Manager
Tel. + 358 9 6189 9446
firstname.lastname@sitra.fi

The Research Institute of the Finnish Economy, ETLA

Rita Asplund, Research Director
Tel. +358 9 609 90208
rita.asplund@etla.fi

Mika Maliranta, Head of Unit
Tel. +358 9 609 90219
mika.maliranta@etla.fi

You can find publication details, order the publication or download it (pdf) on page Sitra Reports series »