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How does a university degree influence pay?

How does a university degree influence pay?

Your education is likely to affect your children’s future direction. Various research has suggested that when parents have a university education, it’s very likely that their children will also study at college. Whilst children from weaker social environments - mainly due to their parents' attitudes - have lower overall aims and chances for a better life. Higher education is an opportunity for many young people to make a positive change and combat poverty. But is it really worth investing the time, energy and money in university studies? Paylab.com has set out to answer these questions from the wider perspective.

Higher education delivers a clear pay advantage

In Europe, especially in countries of Central Europe, the Balkans and the Baltic States - where university education remains largely free - having higher education certainly pays off due to its positive impact on salary. Salary increases and salary growth for university graduates pursuing careers are unmatched, as analysed by Paylab.com. According to employee salary analysis, graduates earn a monthly average up to half more than secondary school leavers. The pay gap increases with age, as graduate employees enjoy dynamic wage growth throughout their careers. In terms of life-long income, secondary school leavers will never manage to narrow the wage gap with graduates.

An analysis by the America-based Pew Research Centre states that increasing skills at university has a positive impact on a promising future financial status, as well as job satisfaction and a preference to work full time. As the report states: “Young graduates outperform their less-educated peers. And when today’s young adults are compared with previous generations, the disparity in economic outcomes between graduates and secondary school leavers or less formal schooling has never been greater in the modern era.”

What’s the quality of universities?

However, there are varying levels of access to education across the globe, as well as different prestige and quality of universities – evaluated by various rankings in accordance with established criteria. In some disciplines, in particular humanities, achieving a degree is relatively straightforward but graduates’ genuine application in such fields is questionable. Many such graduates will end up working outside their study field, for example philosophy and political graduates often work as customer support specialists or project managers.  

Although a university degree still holds weight, recruiters are more interested in experience and skills. This is especially true in today's globalized approach to talent search, and labour mobility and brain drain are commonly features in countries where professionals’ pay falls short.   

However, many universities represent a ticket to a great career – doors that open from university. For many students there’s also the attraction of studying at a university overseas. There is talk of investing in education or looking for opportunities for various scholarship programs.

Is an education worth the debt?

The value of university education in terms of lifetime income is particularly questionable in countries where such education comes at the price of students running up sizeable debt, such as the USA and Australia in the case of students that target foreign studies.

In the West, especially the USA, in terms of education the second extreme arises: the growing spiral of student loans. Never before have so many young Americans - under 30 years of age – had such debt, up to 70 percent of graduates are burdened with loan repayments.

In calculating the financial benefits of a university education, the time needed to repay any accumulated debt needs to be considered – a prerequisite for which is clearly a well-paid job. Undergraduates often monitor salary fluctuations for various occupations.

Many experts suppose that long-term student loan repayments have a major impact on an overall reluctance to get into indebt due to housing, which has an influence on the housing industry as well as delaying parenthood and retirement age. Young people need to calculate in advance their post-graduation earnings and the length of debt repayment, which is largely related to the chosen field of study. To attract talent, many employers offer debt reduction programs, whereby young employees receive support for their repayments.

While an advantage, university education not always a prerequisite for success

Many people consider that education is available outside the structured university system, and is not the only yardstick to measure success anyway.

In practice, a wide disparity prevails between the graduates that universities churn out and what the labour market actually needs. Critics observe that educational institutions fail to reflect market needs.

Companies seek specific competencies/skills to fill open positions. That’s why for some employers educational attainment is not the be-all and end-all of recruitment. In countries where unemployment is low and therefore competition for candidates is fierce, employers often set aside strict criteria and give preference to experience as a suitable qualification.

Young people who want to avoid student debt also have another way: entering the labour market earlier, gaining valuable experience, and specialising. Such people complete their education over time in accordance with the needs and requirements of the market, or start their own business.

Better education – better future

However, according to OECD study, employees with higher education have higher employment rate. 

Technological progress has also changed employment in production, retail and logistics. The process of modernisation and automation will probably also change the labour market, where processes are becoming more efficient and manual work is largely replaced by robots. In the long-term, graduates will represent higher value to the labour market. Increasing education today will lead to an increase in schooling of the next generation, and hence an improvement in later life outcomes such as health, productivity and wealth. 

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