OECD finds it pays to graduate

December 7, 2001

An objective measure of the economic and social value of a degree across the developed world has been devised by the Organisation for Economic Cooperation and Development. It is to publish a comparison of the "rate of return" on investment in university education.

"Rates of return for young people who successfully pursue a post-compulsory education suggest that there are strong incentives for the average student to engage in education activity," the OECD says in its Economic Outlook No 70 , to be published shortly.

"Social rates of return are also high, even if they are lower than the private rates, and point to the benefits of investment in post-compulsory education for society as a whole."

The OECD said its findings suggest that there are strong incentives for the average student to continue in post-compulsory education. There are significant percentage increases for wage-earners who have completed post-compulsory education.

Higher earnings potential is an important motivation for individuals. The wage premium earned by graduates is particularly high in the United States, France and the United Kingdom.

The UK stands out as having high rewards from tertiary education, with the US, France, Denmark, the Netherlands and Sweden characterised by relatively high rates, ranging from 11 to 15 per cent. Among the remaining countries with rates below 10 per cent are Italy and Japan. Despite narrow wage differentials, Denmark and Sweden offer comparatively strong incentives to acquire university education.

Broader social rates of return are high, underlining the benefits of investment in post-compulsory education for society.

To arrive at comparable figures, the researchers "neutralised" the effects of different income tax regimes, unemployment rates and arrangements for student finance.

The report estimates that, on average in OECD countries, graduates received a gross transfer from public funds of about $50,000 (£35,000), compared with $18,000 for students completing post-compulsory secondary education.

Tuition fees have a particularly negative impact on rates of return in the US, the UK and Canada.

On the other hand, student grant and loan arrangements increased the incentive to study by an average 2.5 to 3 per cent. "The impact is particularly strong in Denmark... it is weak in Japan and France, and absent in Italy."

Details: OECD Economic Outlook No 70 (Preliminary Edition) www.oecd.org

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