Report finds that overall financial returns for university and college are equal
Canada produces more post-secondary graduates than any other country. That fact has often raised concerns over whether too many students are pursuing a higher education. Not so, according to a C.D. Howe study published last week. The paper, authored by Torben Drewes and Daniel Boothby, analyzed the average earnings for those with a university degree, college diploma, and a trade certificate, compared against those with only high school. They concluded that the earnings premium, between 1980 and 2005 has continued to rise.
For males with a university degree, they earned 32 per cent more than their high school counterparts in 1980, rising to 40 per cent in 1990 and 45 per cent in 2005. For females, the earnings premium was 60 per cent in 2005. The findings “suggests that we are quite right to promote accessibility in post-secondary education,” Drewes, who teaches economics at Trent University, said. “There is an insatiable demand for high skilled labour in this country.”
Canada’s high levels of educational attainment is largely attributed to producing more graduates from college and trades than any other OECD country, at 24 per cent of Canadians aged 25-64. The OECD average for this category is nine per cent. However, Canada graduates fewer people from university than other OECD countries, with 25 per cent of Canadians holding a degree, compared to 31 per cent for the United States and 32 per cent for Norway. Although the OECD average is 20 per cent.
Given that the earnings premium over high school is much lower for college graduates, at 17 per cent for males and 19 per cent for females, than for university graduates, Drewes and Boothby also considered whether this suggested that too many resources were being invested in non-university education. To answer the question, they looked at internal rates of return. They found that when accounting for the longer time required to complete a university degree, compared to a community college diploma, the difference in overall financial benefit between the two credentials narrowed.
The rate of return for males with a university degree, once opportunity costs were factored in, was 13 per cent, while it was it was 11 per cent for males with a college diploma. Females also saw a more narrow earnings gap between different types of education, though not as pronounced. The rate of return for females with a university degree is 17 per cent, compared to 11 per cent for those with a college education. “If we look at internal rates of return of return for college and university, they are being equalized,” Drewes said. “People follow the money.”
The one outlier was that females who had earned a trade certificate saw no increase over females with only high school.