Andrew Norton raises the question of whether too many young Australians are undertaking tertiary education (see also here. This is an important question in a number of respects. Most notably, if, as I and others have argued, we are moving towards an economy which will require universal (or close to universal) secondary school completion and a general expectation of post-secondary education, the associated funding policies are going to be radically different than if we move back towards a system where only higher education is undertaken only by a minority.

Norton’s discussion blurs two separate issues. The first, and most important is whether more students should go on to post-secondary education. Less critical is the issue of whether there is currently an appropriate balance between the university sector and the technical and further education (TAFE) sector. Since both sectors have suffered from much the same set of bad policies, this is a secondary issue. I tend to agree with Norton that TAFE should be expanded in relative terms, but this is in a context where we need growth in all forms of post-secondary education.

Coming back to the main question, the labor market evidence is strongly against Norton. As this article by Ross Gittins based on research by Jeff Borland, shows, despite the substantial growth in numbers of graduates in recent years, the wage premium for graduates has remained unchanged (in the US where growth in graduate numbers has been slower, the wage premium has risen greatly). This outcome would make sense only if there was substantial growth in demand for tertiary graduates as against high school graduates and another articleby Gittins shows that this is indeed the case. Reflecting the polarisation of the labor market, there has also been substantial growth in low-wage service employment most of it casual and part-time.

Norton offers the objection that university graduates are being hired for jobs that would otherwise be filled by high school graduates. Given the wage data this does not make sense. At the margin, a rational employer would do better to hire a school leaver at a lower wage than a slightly more skilled graduate at a much better wage. In fact, they would do better to hire a given person straight out of school rather than waiting for them to go to university (there’s a problem here in that the data refer to average rather than marginal premiums, but more detailed econometric work suggests that this is unimportant).

Although it’s popular, the argument put forward by Norton can only work for a rigidly stratified labour market with a fixed set of slots, unresponsive to the forces of supply and demand. Superficially, for example, the public service of the 1970s, looked like this. In reality, however, even this relatively bureaucratic labour market had a good deal of flexibility, and this was reflected in a steady growth in the number of positions requiring post-secondary education.