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Education and Early Labour Market Outcomes in Canada - December 2007

5. Summary and policy implications

This paper has used data from three cycles of the Youth in Transition Survey (YITS) to investigate how early labour market outcomes differ across different levels of education. The YITS data provide detailed information on the transition from school to work for a cohort of young respondents.

The results support previous findings of a significant relationship between educational attainment and wages. Wages were found to be higher for graduates from high school relative to those of high school drop-outs. Similarly, graduates from short post-secondary programs generally have higher wages than those with high school only. Finally, graduates from long post-secondary programs earn higher wages than graduates from short programs, although this effect was limited to females. Overall, the effect of education on wages is larger for women than for men. This finding is consistent with previous work, e.g. Hansen (2006), Burbidge et al (2003), Ferrer and Riddell (2002) who have also found that the return to education in Canada is higher for women than for men.

Another finding in this paper is that education increases the probability of being employed. For males, graduates from a post-secondary program are significantly less likely to be unemployed and the effect is larger for longer programs. A similar result was found for women although the magnitude of the effect was smaller. It was also found that education reduces inactivity (neither employed nor searching for a job) in the labour market and more so for women than for men. Thus, similar to findings in previous work and not surprisingly, the results suggest the existence of beneficial labour market outcomes among post-secondary graduates relative to those with no schooling beyond high school. These benefits appear already within a few years after graduation and, as some research indicate, will grow with time in labour market.

The results also reveal that around 20% will experience unemployment during the first year after finishing school. This figure is similar for both men and women and independent of the highest grade completed. However, the duration of the unemployment spell during this first year is significantly shorter for those who have graduated from a post-secondary program. Thus, although higher education does not appear to reduce the incidence of unemployment immediately following school, it does reduce the time spent unemployed. Higher education therefore seems to generate more and/or better job offers. Another indication of this was the finding that the wage growth during the first year following school is significantly higher for graduates from a high post-secondary program than for other workers. Further, labour force data for the first two years out of school reveal that while the employment rate increase substantially during the first year, it remains constant during the second year. This pattern was observed regardless of educational attainment and gender. Indeed, employment rates for men and women were similar for all levels of education except for high school drop-outs, where the employment rate is higher for males than for females. This may be due to higher fertility rates for women with low levels of education.

This paper has also documented that the correspondence between main field of study and occupation among post-secondary graduates is lower for graduates from long programs but it increases with time since graduation. This suggests that the transition period between school and work is characterized by unemployment or employment in jobs that may not completely match the qualifications. However, with time, search either on-the-job or off-the-job generally leads to an improved match between skills obtained in school and those used in the workplace. When log-wages were regressed on an indicator for a match between field of study and occupation, the estimates indicate significant wage gains for graduates working in occupations that matched their main field of study in school. The fact that the probability of match between main field of study and occupation increase with time also suggests that the wage difference between those with and without a post-secondary education degree will increase with time.

Overall, the findings in this paper suggest that PSE graduates generally have better labour market outcomes than those with no schooling beyond high school. These differences can be observed within a few years of graduation and are likely to increase over the life-cycle (see for instance Belzil (2004) for evidence on higher wage growth among higher educated workers). For the female sample, the results show that average wages among graduates from long PSE programs are higher than average wages for graduates from short PSE program. However, such a pattern is not observed for males. The higher return to education for females relative to males may also explain the observation that more women than men pursue PSE. If expectation about future wage outcomes associated with different levels of education is a deciding factor, then groups with higher wage differences are predicted to acquire more education than groups with lower economic returns. Indeed, Belzil and Hansen (2006) found that students in Canada appear to be forward-looking and respond to expectations about future earnings gain. Further, the higher return to PSE for women may also imply that they are less sensitive than men towards tuition fee increases. In fact, the estimated returns in this paper implies that the tuitions fees must be substantially higher than they are today in order to make the present value of net benefits from a post-secondary education lower than the present value of net benefits from a high school diploma. Given that the earnings differences presented in this paper will likely increase over the life-cycle, the current fee levels for post-secondary education makes investments in higher education very beneficial.

Regarding the occupational destinations of PSE graduates, the YITS data indicate a relatively close match between field of study and subsequent occupation. However, a substantial fraction of PSE graduates appear to be working in occupations that do not correspond well with the major field of study in their post-secondary studies.

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Date Modified:
2008-01-24