Does it pay to graduate from an ‘elite’ university? Not as much as you’d think

Attending an elite university appears to play a comparatively small role in determining a graduate’s starting salary.

As the deadline for applications for mid-year admission to university approaches, prospective students face two important choices: what to study, and at which university.

If past experience is any guide, places at the Group of Eight (Go8) universities will be in high demand. In 2017, the Go8 universities attracted the largest share of undergraduate applications and rejected more applications than any other type of university.

But our research shows attending one of these elite universities doesn’t in itself significantly increase the average starting salary for graduates.

What makes the Go8 so popular?

The Go8 universities have more favourable student-to-staff ratiosbetter qualified staff, superior research outcomes, and better placement in university rankings compared to non-Go8 universities.

That said, institutions of the Australian Technology Network (ATN) are broadly comparable in terms of class sizes and staff qualifications.

This leads to another question: do these superior institutional characteristics have a material impact on the earnings of their graduates? Conventional wisdom and economic theory support a link between institutional characteristics and students’ employment outcomes. But the measurement of this effect is not straightforward.

Prospective students compete for university places on the basis of their past academic performance. So, any apparent earnings bonus enjoyed by the graduates of supposedly better-quality universities may, to an unknown extent, be the result of those universities recruiting more able students.

The characteristics of these students (including better academic performance) should make them more likely to be higher paid wherever they studied. That is to say, it may be the students who are “better quality”, rather than the university.

Do graduates from Go8 unis earn more?

In a recent discussion paper, we investigated whether young undergraduates from the Go8 universities earn more, on average, than graduates from other universities in their first full-time job after graduation. We also looked at whether any such higher earnings are due to Go8 universities recruiting “better” students.

We used data from the Graduate Destination Survey and data on average Australian Tertiary Admission Ranks (ATARs).

We found statistically significant evidence of variation in average starting salaries across university groupings. But the magnitude of the variation is only a few percentage points. The extra salary amounts enjoyed by Go8 graduates are even smaller when we control for:

  • differences in the mix of fields studied
  • the geographical regions in which graduates work
  • the quality of students recruited.

We found between 13% and 46% of the apparent Go8 salary bonus over other university groups are due to their recruitment of students with higher ATARs. So, attending an elite university appears to play a comparatively small role in determining one’s starting salary, at least relative to other factors.

This leaves us with the big question: why, given their superior characteristics, are the salary benefits associated with attending an elite university so small? We highlight three plausible explanations.

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