Indicator A4. What are the earnings advantages from education?

Upper secondary education is commonly considered the minimum educational attainment level for successful labour-market participation. Adults who did not attain upper secondary education not only have the lowest employment rate (see Indicator A3), but also the lowest earnings. The level of earnings increases with increased educational attainment.

On average across OECD countries, 25-64 year-olds in full-time employment with upper secondary or post-secondary non-tertiary education earn 23% more than those who have not attained upper secondary education. The relative earnings for these workers are highest in Brazil, Chile, Colombia, the Czech Republic and the United States, where adults with an upper secondary or post-secondary non-tertiary education earn at least 40% more than those with below upper secondary education (Figure A4.1).

In contrast, in a few countries, the earnings advantage of an upper secondary or post-secondary qualification is minor or negligible compared to someone with below upper secondary education. This is the case in Australia, Estonia, France and Ireland, where the earnings advantage does not exceed 10%. Interestingly, adults who have attained upper secondary or post-secondary education in these countries have still much better labour-market outcomes than those with below upper secondary education, indicated by a difference in employment rates of about 20 percentage points (see Indicator A3).

On average across OECD countries, adults with general and vocational qualifications at the upper secondary education or post-secondary non-tertiary attainment level have similar earnings levels. Their earnings are about 25% higher than that of their peers with below upper secondary education (Figure A4.1).

In about one third of OECD and partner countries, the difference in relative earnings of adults with a general and vocational upper secondary or post-secondary non-tertiary qualification is 5 or less percentage points. However, in some countries such as Austria, Finland, France, Germany or the United Kingdom, the difference in the earnings advantage is between 15 and 20 percentage points in favour of a general qualification. In some countries, a vocational qualification has a comparative earnings advantage over a general one. In Canada, Costa Rica and the Czech Republic the difference is about 20 percentage points or more in favour of a vocational qualification (Figure A4.1).

In all OECD countries, earning differentials are generally wider between tertiary and upper secondary education than between upper secondary or post-secondary non-tertiary education and below upper secondary education. On average across OECD countries, 25-64 year-olds with a tertiary degree earn on average 54% more for full-time employment than those with upper secondary attainment (Figure A4.2).

Indeed, having a tertiary degree carries a considerable earnings advantage in most OECD and partner countries. Relative earnings for full-time workers are highest in Brazil, Chile, Colombia and Costa Rica, where adults with a tertiary education earn over twice as much as those with upper secondary education. In all of these countries, the share of adults with tertiary education is among the lowest in OECD and partner countries (less than 25%), which may partially explain the large earnings advantage of tertiary-educated workers (see Indicator A1; Figure A4.2).

The earnings advantage for tertiary-educated workers varies considerably by level of tertiary attainment, however. In most OECD member and partner countries, workers with a master’s or doctoral degree or equivalent earn more than those with a bachelor’s degree or equivalent, who in turn earn more than those with a short-cycle tertiary degree. On average across OECD countries, adults with a short-cycle tertiary degree earn about 20% more than those with an upper secondary education. The earnings advantage increases to 43% for those with a bachelor’s degree and to nearly 90% for those with a master’s or doctoral degree.

There are some important exceptions to this general pattern. In Estonia and Portugal, adults with a short-cycle tertiary degree earn less than those with an upper secondary education. In both cases, however, these groups represent relatively small shares of the tertiary-educated population.

Moreover, the earnings of workers with a short-cycle tertiary degree are higher than those of workers with a bachelor’s degree in Austria, Greece and Norway. With the exception of Greece, which is one of the countries with the highest short-cycle tertiary attainment rates, with at least 10% of adults having attained this level (see Indicator A1).

According to the analysis of data on recent graduates, available for 12 countries, relative earnings advantages are also substantial for young graduates who recently earned a bachelor’s, master’s or equivalent degree compared to those who recently completed their upper secondary qualification (Box A4.1).

Higher educational attainment is associated with faster increases in earnings throughout a person’s working life, meaning the wage differentials across educational attainment levels tend to widen with age. On average across OECD countries, 45-54 year-olds without upper secondary education earn 10% more than their 25-34 year-old peers. Among adults with an upper secondary or post-secondary non-tertiary education, 45-54 year-olds earn 20% more and tertiary-educated older adults earn about 50% more than their younger peers (Figure A4.3).

Higher earnings among older age groups could mean either that earnings increase with experience or that earnings have fallen for younger generations (or a combination of both effects). In most OECD countries, increases over the course of a career is mainly determined by seniority-based pay schemes (where wages rise with seniority) and wage progression from growing work experience and responsibilities (OECD, 2019[1]). Despite the rapid rise in the share of adults who have attained tertiary education, the difference in earnings between older and younger tertiary-educated workers has changed only slightly over the last decade. In most countries, the relative earnings advantage by age has slightly increased but the change is less than 10 percentage points (OECD, 2020[2]). Therefore, the differences in earnings between older and younger adults are mostly the result of a positive relationship between the level of earnings and work experience. The differences can be interpreted as a proxy for the expected earnings development over the career.

The size of age-related earnings increases varies considerably across OECD and partner countries. In more than half of countries, the difference in the average earnings of 45-54 year-old and 25-34 year-old workers with below upper secondary education is less than 10%. This narrow gap may be due to greater work experience among 25-34 year-olds without upper secondary education, in contrast with young tertiary-educated adults who would only have left education recently. However, in Germany, Greece, Italy, the Netherlands, Norway, Spain and the United Kingdom the earnings difference between these workers amounts to 25% or more (Figure A4.3).

In most OECD and partner countries, the difference in earnings between 45-54 year-olds and 25-34 year-olds is larger for those with upper secondary or post-secondary non-tertiary education than for those with below upper secondary education. The size of the difference varies from about 40% or more in Brazil, Italy, Ireland, the Netherlands, Portugal and Spain to less than 10% in Chile, the Czech Republic, Hungary and Poland. In a few countries, however, young workers with an upper secondary or post-secondary non-tertiary education earn more than older workers. This is the case in Estonia, Latvia, Lithuania and the Slovak Republic (Figure A4.3).

In contrast, in about half of OECD and partner countries with available data, older adults with tertiary education earn at least 50% more than their younger peers. The difference in earnings between older and younger tertiary-educated adults is below 10 percentage points only in Estonia, Latvia and Lithuania, while it exceeds 60% in Austria, Israel, Italy, Luxembourg, the Netherlands, Portugal and Spain. A possible explanation for the increase in the earnings advantage of tertiary workers as they progress in their careers is that people with higher levels of education are more likely to be and remain employed, and may have more opportunities to gain experience on the job (Figure A4.3).

The earnings gap between older and younger workers with upper secondary or post-secondary non-tertiary education is wider for those who attended a general programme rather than a vocational one in most OECD and partner countries. In Austria, Denmark, Finland, Norway, Spain and Sweden the difference in earnings is over 20 percentage points more for those with a general qualification, while in Chile, Hungary and Israel, the earnings increase is larger for those with a vocational one (about 10 percentage points in all three countries).

The observed difference in earnings between older and younger adults with general or vocational qualifications seems to be consistent with the observation made by some researchers that vocational graduates have a comparative employment and earnings advantage at the beginning of their careers that diminishes over time and turns into an employment and earnings disadvantage compared with general graduates in the long term (Hanushek et al., 2017[3]; Brunello and Rocco, 2017[4]).

Women do not earn as much as men in any OECD or partner country. Across OECD countries, women with below upper secondary education who work full time earn 77% of the earnings of their male peers, a gender gap of 23%. A similar gender gap in earnings is observed for women with an upper secondary or post-secondary non-tertiary education (22%), or women with tertiary education (24%) (Annex Table A4.3).

As women are more likely to work part-time than men, the gender gap in the average earnings of all workers (including full-time and part-time earners) is even wider. On average across OECD countries, women with below upper secondary education in full-time or part-time work earn only 69% of the earnings of similarly educated men and women with secondary or post-secondary non-tertiary education and tertiary-educated women earn only 70% of the earnings of similarly educated men (OECD, 2020[2]).

The reasons for the gender gap in earnings include gender stereotyping, social conventions and discrimination against women, but also differences between men and women in their choice of fields of study. Gender stereotypes and social conventions may also contribute to the observed differences in fields of study between men and women. Men are more likely than women to study in fields associated with higher earnings, such as engineering, manufacturing and construction, and information and communication technologies (ICT), while a larger share of women enrol in fields associated with lower earnings, including education, and arts and humanities (OECD, 2019[5]).

In recent years, awareness of the differences in pay between men and women has risen. Many countries have introduced new national policies to reduce disparities in earnings between men and women. Some countries have put in place concrete measures, such as pay transparency, to foster equity in pay between men and women (OECD, 2017[6]). In most of the countries with available data, the gender gap between the earnings of tertiary-educated men and women narrowed between 2010 and 2018. On average across the 18 OECD countries with data for both years, the gap fell by about 3 percentage points, reaching over 5 percentage points in Australia, Estonia, Korea, Luxembourg, the Netherlands and Norway (OECD, 2020[2]).

Adults refer to 25-64 year-olds.

Educational attainment refers to the highest level of education attained by a person.

Fields of study are categorised according to the ISCED Fields of Education and Training (ISCED-F 2013).

Levels of education: See the Reader’s Guide at the beginning of this publication for a presentation of all ISCED 2011 levels.

The analysis of relative earnings of the population with specific educational attainment and of the distribution of earnings includes full-time and part-time workers. It does not control for hours worked, although the number of hours worked is likely to influence earnings in general and the distribution in particular. The analysis of differences in earnings between men and women include full-time workers only. For the definition of full-time earnings, countries were asked whether they had applied a self-designated full-time status or a threshold value for the typical number of hours worked per week.

Earnings data are based on an annual, monthly or weekly reference period, depending on the country. The length of the reference period for earnings also differs. Data on earnings are before income tax for most countries. Earnings of self-employed people are excluded for many countries and, in general, there is no simple and comparable method to separate earnings from employment and returns to capital invested in a business.

This indicator does not take into consideration the impact of effective income from free government services. Therefore, although incomes could be lower in some countries than in others, the state could be providing both free healthcare and free schooling, for example.

Data presented at the country level are average earnings, but there can be significant variations for individuals. Data shown in Table A4.2 “Level of earnings relative to median earnings, by educational attainment (2018)” illustrate the earnings variations among individuals.

The total average for earnings (men plus women) is not the simple average of the earnings figures for men and women. Instead, it is the average based on earnings of the total population. This overall average weights the average earnings separately for men and women by the share of men and women with different levels of educational attainment.

Please see the OECD Handbook for Internationally Comparative Education Statistics 2018 (OECD, 2018[9]) for more information and Annex 3 for country-specific notes (https://doi.org/10.1787/69096873-en).

The indicator is based on the data collection on education and earnings by the OECD Labour Market and Social Outcomes of Learning Network (LSO Network). The data collection takes account of earnings for individuals working full time and full year, as well as part time or part year, during the reference period. This database contains data on dispersion of earnings from work and on student earnings versus non-student earnings. The source for most countries is national household surveys such as Labour Force Surveys (LFS), the European Union Statistics on Income and Living Conditions (EU-SILC) or other dedicated surveys collecting data on earnings. About one-quarter of countries use data from tax or other registers. Please see Annex 3 for country-specific notes on the national sources (https://doi.org/10.1787/69096873-en).

References

[4] Brunello, G. and L. Rocco (2017), “The labor market effects of academic and vocational education over the life cycle: Evidence based on a British cohort”, Journal of Human Capital, Vol. 11/1, pp. 106-166, http://dx.doi.org/10.1086/690234.

[3] Hanushek, E. et al. (2017), “General education, vocational education, and labor-market outcomes over the life cycle”, The Journal of Human Resources, Vol. 52/1, pp. 48-87, http://dx.doi.org/10.3368/jhr.52.1.0415-7074R.

[2] OECD (2020), Education and earnings, Education at a Glance Database, OECD.Stat, http://stats.oecd.org/Index.aspx?datasetcode=EAG_EARNINGS.

[7] OECD (2020), Education at a Glance Database - Entrants by field, http://stats.oecd.org/Index.aspx?datasetcode=EDU_ENTR_FIELD.

[5] OECD (2019), Education at a Glance 2019: OECD Indicators, OECD Publishing, Paris, https://dx.doi.org/10.1787/f8d7880d-en.

[1] OECD (2019), Working Better with Age, Ageing and Employment Policies, OECD Publishing, Paris, https://dx.doi.org/10.1787/c4d4f66a-en.

[9] OECD (2018), OECD Handbook for Internationally Comparative Education Statistics 2018: Concepts, Standards, Definitions and Classifications, OECD Publishing, Paris, https://doi.org/10.1787/9789264304444-en.

[8] OECD (2017), Education at a Glance 2017: OECD Indicators, OECD Publishing, Paris, https://dx.doi.org/10.1787/eag-2017-en.

[6] OECD (2017), The Pursuit of Gender Equality: An Uphill Battle, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264281318-en.

Table A4.1 Relative earnings of workers, by educational attainment (2018)

Table A4.2 Level of earnings relative to median earnings, by educational attainment (2018)

Table A4.3 Women’s earnings as a percentage of men's earnings, by educational attainment and age group (2018)

Table A4.4 Relative earnings of workers, by educational attainment and age (2018)

StatLink: https://doi.org/10.1787/888934162356

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