The High Education / Low Income Paradox: College and University Graduates with Low Earnings, Ontario, 2006

by Klarka Zeman, Kathryn McMullen and Patrice de Broucker

Section 1: Introduction

The positive contribution made by education to earnings has been established by numerous studies. These studies have shown that better-educated individuals tend to earn higher wages, experience shorter periods of unemployment and have access to more prestigious jobs than their less-educated counterparts. The positive relationship between education and a range of labour market outcomes has been well recognized in Canada, where a postsecondary education is seen as a path to higher wages, employment stability and social integration for the individual and to economic growth and prosperity for the country as a whole. Because of this, "universal access to postsecondary education, for those who qualify, is an important ideal in Canadian society" (Lambert et al., 2004). This is reflected in the fact that in 2004, "no other Organization for Economic Cooperation and Development (OECD) nation had a higher proportion of its population aged 25 to 64 with either a college or university credential than Canada" (Council of Ministries of Education, Canada and Statistics Canada 2007).

On average, the employment earnings of postsecondary graduates are higher than those of individuals without postsecondary qualifications. However, not everyone earns the average – a 2004 report shows, for example, that while 25% of university graduates earned substantially more than high school graduates, 25% of university-degree holders earned salaries that were lower than those of the average high school graduate (Mackenzie 2004). This points to significant variation in the earnings of university and college graduates, in that they may be significantly better off than their high school graduate counterparts — or significantly worse off. This variability implies a certain degree of risk in choosing to invest in education. The question then becomes – who is most at risk for not receiving high returns to their investment in postsecondary education?

International comparisons reveal another interesting finding, however: in Canada, the percentage of both college- and university-educated workers who earn less than half of the median employment income is higher than in most, if not all, OECD countries (OECD 2008). Data from Statistics Canada's Survey of Labour and Income Dynamics (SLID) show that 18% of university-educated adults and 23% of college-educated adults aged 25 to 64 in Canada earned less than half the national median employment income in 2006. This meant that these workers' mean annual earnings were less than $16,917 before taxes and transfers.

This report draws a profile of postsecondary-educated workers who are in a low-earnings situation in Ontario. Findings are also reported at the national level, in order to put the results for Ontario in a comparative perspective. The analysis identifies demographic and employment characteristics that help explain why some postsecondary-educated individuals are in a low employment-earnings situation, using data from the Survey of Labour and Income Dynamics (SLID). In particular, the report investigates the relationship between various demographic characteristics, family situation, province and employment characteristics, and the employment income of college and university graduates.1

As noted above, this study was initially prompted by the findings reported by the OECD (2008) that Canada ranked higher than most other key OECD countries in terms of the percentage of postsecondary graduates with earnings below half the national median in 2006. To be consistent with those findings, the OECD definition of low earnings is used throughout this report. That definition includes all individuals between the ages of 25 and 64 who had non-zero employment earnings in 2006 (the latest year of data available at the time of the OECD analysis). The definition includes all individuals who reported having employment earnings, even though working may not have been their main activity for that year.

This report is organized as follows. Section 2 provides a discussion of the OECD's international comparison of the percentage of highly-educated workers in a low earnings situation, with the results for Ontario placed in this international context. Section 3 consists of a review of the literature on the factors that may contribute to low earnings, factors that are then taken into account in the subsequent descriptive and logistic regression analyses. The data source and analytical methodology are described in Section 4. The analytical results are discussed in two parts. Section 5 presents the descriptive results for Ontario and Canada, identifying the characteristics of university- and college- educated workers who were earning less than half of the national median employment income in 2006. Section 6 then presents the results of the logistic regression analyses for Ontario and for Canada that identifies the independent contribution of each of these factors, after controlling for the impact of the other factors. Conclusions and recommendations for future research are discussed in Section 7.


Note

  1. It should be noted that data from SLID do not allow the role of differences in the abilities of individuals to be addressed. The latter is important because it may be that individuals holding the same certifications actually differ in their level of abilities and it is these abilities that are rewarded in the labour market, not the credential itself.
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