EDUCATION RETENTION RATES AND LABOUR MARKET OUTCOMES

Year: 1992

Author: Morris, Tom

Type of paper: Abstract refereed

Abstract:
The recent report of the Employment and Skills Formation Council, The Australian Vocational Certificate Training System, otherwise known as the Carmichael report, recommended that by 2001 ninety per cent of Australia's nineteen year olds should have completed Year 12, or an initial post- school qualification (Carmichael 1992). Currently approximately seventy five per cent of nineteen year olds complete the equivalent of twelve years of schooling (ABS, Cat. No. 6227.0). The belief that the increased retention of youth in formal education will promote economic growth and a more equitable earnings distribution has played, and continues to play, a prominent role in the push for increased post-compulsory education and training in Australia. The purpose of this paper is to demonstrate that the link between education and these labour market outcomes is less certain and more complex than commonly assumed. The analysis presented in this paper takes as its starting point two types of empirical evidence. First, that there is a strong relationship between an individuals earnings and their level of educational attainment. Second, that despite a significant increase in education retention rates over the past thirty years, productivity, economic growth and the earnings distribution appear to have improved very little, if at all. The paper presents six education - labour market scenarios, defined by two views of the education process and three perspectives on the labour market (see diagram below). All six scenarios are capable of explaining the relationship between individual earnings and educational attainment. However, only one, the human capital - wage competition perspective proposes that there is a direct relationship between increased education retention rates and both economic growth and the earnings distribution. The apparent failure of increased education retention rates to produce the desired labour market outcomes may therefore be seen to raise questions about the descriptive validity of the human capital - wage competition scenario. This is seen to have two implications. Either the labour market should be reformed to more closely resemble wage competition or the alternative education and labour market perspectives must be accepted as a better description of reality.

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