While on average graduates earn more, nearly half of new grads are in
fields that underperform
TORONTO, Aug. 26, 2013 /CNW/ - Completing post-secondary education is
still the best route to a well paying, quality job in Canada but the
premium is dropping as too few students are graduating from programs
that are in high demand, finds a new report from CIBC World Markets.
"A higher education may be a necessary condition for a good job in
Canada, but it is no longer a sufficient condition," says CIBC Deputy
Chief Economist Benjamin Tal who coauthored the report with CIBC
Economist, Emanuella Enenajor. "Narrowing employment and earning
premiums for higher education mean that, on average, Canada is
experiencing an excess supply of post-secondary graduates.
"And despite the overwhelming evidence that one's field of study is the
most important factor determining labour market outcomes, today's
students have not gravitated to more financially advantageous fields in
a way that reflects the changing reality of the labour market."
The CIBC report notes that the proportion of adults in Canada with a
post-secondary education is the highest among all OECD countries and
the cost of that education is roughly double the OECD average. Yet,
more and more of those degree holders fall behind in the earnings scale
with the share of Canadian university graduates who make less than half
the national median income the largest among all OECD countries.
The CIBC economists found that this is largely the result of the
programs Canadians have chosen to study. They examined various reports
that have attempted to compute an annualized average "return on
investment" (ROI) on education and found stark divergences depending on
the field of study.
"Across subjects, the biggest bang for buck comes from specialized and
professional fields such as medicine, law and engineering," says Mr.
Tal. "A look at the dispersion of earnings across fields of study shows
that there is a much greater risk of falling into a lower-income
category for graduates of humanities and social sciences, with a
limited risk for students of health, engineering or business.
"Those underperforming sectors comprise just under half of all recent
graduates. In other words, Canadian students are continuing to pursue
fields where upon graduation, they aren't getting a relative edge in
terms of income prospects."
He notes that the relative divergence in outcomes across fields of study
is really no secret. "Most Canadians are aware that on average, your
odds to earn more are better with a degree in engineering than a degree
in medieval history. The field-of-study premium isn't just a Canadian
phenomenon—it's been observed in the U.S., Sweden and other industrial
nations. But it's not clear that students, armed with that knowledge,
have been making the most profitable decisions. With the exception of
commerce, in the last 10 years we haven't seen a meaningful influx of
students into degrees with more advantageous earnings outcomes."
As a result, the unemployment rate among university graduates is now
just 1.7 percentage points lower than among those with only high school
education - a gap that was much larger in the 1990s. The university
premium over college has also narrowed and is now a slim 0.7 percentage
points. While an MA or a PhD signals more specialized skills than a
Bachelor's degree you will hardly see that result in the unemployment
statistics, with the jobless rate premium falling to a trivial 0.5
While higher education overall still translates into better wages - a
Bachelor's degree buys you more than a 30 per cent earnings premium
over high school graduates with Masters or PhD graduates tacking on an
additional 15 per cent - that premium is also narrowing. Real weekly
wages of high school and college graduates rose by 13 per cent vs. 8
per cent among undergraduate degree holders and more than double the
rate seen among MA and PhD holders.
A simple measure of employment quality, part-time employment, shows the
same trend. The share of part-timers among university-educated
Canadians rose from 10 per cent in the 1990s to 13.5 per cent
today—with the gap relative to high-school graduates narrowing to only
one percentage point.
"For students shelling out thousands in higher-learning costs, a
university degree can be viewed as an investment with upfront expenses,
and a stream of future benefits," says Mr. Tal. "And with roughly half
of all Bachelor's degree students graduating with debt, a significant
share of the population is starting their career one step behind in
terms of financial health."
He thinks it is crucial to Canada's economy that we start producing more
graduates in growth areas of the economy. "Improving participation
rates in these fields will likely require some combination of
developing an information infrastructure system designed to identify
emerging trends in labour market needs, improved quality and equity of
learning opportunities, increased resources, improved system efficiency
and increased private investment, in part, in the form of corporate
He adds that any remedy must also include a much simpler and efficient
credential recognition process for new immigrants, better access to
language training and better and more specific information to
prospective immigrants on labour market demand and skills requirements.
Today, more than 50 per cent of degree holders that obtained their
education from outside of Canada earn less than the median income.
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/if_2013-0826.pdf
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For further information:
Benjamin Tal, Deputy Chief Economist, CIBC World Markets Inc. at (416) 956-3698, firstname.lastname@example.org or Kevin Dove, Head of External Communications at 416-980-8835, email@example.com.