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Human Resources and Skills Development Canada

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Education and Early Labour Market Outcomes in Canada - December 2007

1. Introduction

It is well recognized that investments in human capital are essential for innovations and economic growth. While human capital encompasses many aspects, formal education is probably the one that has received most attention by economists (other forms of human capital include job training, learning, health etc.). Investigating the individual determinants of higher education and the labour market outcomes associated with such education is important for many reasons. For example, spending on higher education constitutes a large portion of overall government spending. While there are social returns to education that justify subsidies to higher education, there are also private returns that somewhat offset government subsidies. Moreover, the structure of the labour market is constantly changing and has over the last decades become more oriented towards skilled workers. As a consequence, the educational system needs to adapt in order to respond to the changing demands from employers.

While governments at both the federal and provincial levels in Canada recognize the benefits associated with a high-skilled work force, access to higher education may have been restricted during the 1990s when tuition fees rose significantly across Canada (with the exceptions of the provinces of British Columbia and Quebec). Corak et al (2003) report that average tuition fees for undergraduate arts students almost doubled from 1990-91 to 2000 (expressed in $2001, average tuition fees increased from $1,866 in 1990-91 to $3,456 in 2000). The increase across all undergraduate disciplines was similar, see Frenette (2005). Statistics Canada (2001) has also documented an inability of parents to save for their children's education. This is especially the case among low-income households. Less then 20% of households with incomes less than $30,000 were saving for the post-secondary education of their children which should be compared to around 67% among high-income households (households with incomes above $80,000). During the same period, student borrowing levels and debt burdens increased (see Finnie (2002)), partly because of changes in student aid programs.

The rise in tuition fees over the last 10-15 years may have lead potential university students to consider post-secondary education (PSE) outside universities where the fees are generally lower. As noted by Boothby and Drewes (2006), about two-thirds of those with a PSE have acquired such education outside universities (such as community colleges, trades institutions, and other vocational educational programs). Thus, the non-university PSE sector constitutes an important part of the Canadian post-secondary education system. This may be especially true in Quebec with the CEGEP system in place. In other provinces, community colleges and trade schools provide many students with training beyond high school. Thus, PSE in Canada is quite diverse and such program heterogeneity needs to be considered when studying how early labour market outcomes differ for those with and without PSE.

The primary objective with this paper is to provide a descriptive analysis of early labour market outcomes and how such outcomes differ across different levels of education. The empirical analysis will rely primarily on Ordinary Least Squares (OLS) regressions thereby potentially ignoring some of the methodological difficulties associated with estimating returns to education. Thus, the results provided in this paper should not be taken as estimates of causal effects of PSE but instead as descriptions of how PSE is correlated with different labour market outcomes, such as earnings and unemployment. However, the regression specifications will include a rich set of observable characteristics which may reduce the statistical problems associated with using OLS. In order to estimate the reward to higher education, data drawn from the first three cycles of the older cohort of the Youth in Transition Survey (YITS) will be used. The surveys were conducted in 2000, 2002, and 2004, and targeted individuals who were 18-20 years old in December 1999. A second objective is to assess the correspondence between occupational structure among PSE graduates and the qualifications they obtained during their training. This enables an assessment of how well the educational system performs in terms of providing the skills that are demanded in the labour market.

Overall, the results suggest that completion of a post-secondary program improves labour market outcomes. For females, wage regressions results suggest existence of significant wage premiums associated with graduation from a post-secondary program. Further, average wages of female graduates from long PSE programs are higher than those of graduates from short programs. Regional differences exist with the highest returns (for a Bachelor's degree or above) observed in Western Canada and the lowest in Atlantic Canada. For males, the effect of education on wages is generally smaller than that for females. The results also indicate that education is inversely related to the probability of being unemployed, and for females, of being inactive in the labour market (that is, not employed nor searching for a job). Finally, a majority of PSE graduates appear to find jobs in occupations that match the main field of study. However, the probability of such a match is lower immediately after graduation but increases with time since graduation. This suggest that many recent graduates experience a transition period during which they take jobs, if employed, that may not correspond to the chosen field of study.

The remainder of this paper is organized as follows. The next section presents a brief review of the existing literature. The subsequent section describes the data. Apart from a description of the samples, the section also includes a description of variable definitions and the distribution of educational attainment in Canada. In Section 4 the estimation results are presented and discussed. Finally, Section 5 concludes the paper.

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Date Modified:
2008-01-24