Trades or degrees for higher pay? Here’s the data that shows you

Source: Radio New Zealand

Does having a degree pay off?

The government wants to redirect some of the funding it has been using for the ‘fees-free’ university scheme into trades training.

Prime Minister Christopher Luxon told Morning Report the scheme had been “quite a failure” and the government needed to make sure it was growing the economy.

At the moment, only about 6 percent of young people go into apprenticeships when they leave school, while about a third go into a degree.

But would encouraging more into the trades improve outcomes, for them or for the economy?

The income

Data from the Tertiary Education Commission shows that at a high level, tradespeople earn more straight after graduation than degree-holders, but those with degrees pull away over time.

Focusing on those who are under 25 at the start of their working life, licensed tradespeople, such as electricians and plumbers, are the exception and match or beat the average degree-holder.

As a whole, those with university degrees, including arts, commerce, engineering and health, are starting work on a median $62,000 a year which rises to $95,000 after nine years.

Electricians earn $84,000 a year out of training and almost $100,000 at year nine.

Plumbers start at $79,000 and rise to $94,000.

Carpenters start at $73,000 and rise to $80,000 but are overtaken by degrees at year 5.

Auto mechanics follow a similar pattern.

“Electricians and plumbers are licensed and regulated, harder to qualify into, and supply is constrained. That scarcity translates into durable earnings. Carpentry and mechanics have no such barrier and their earnings flatten fast,” said Simplicity chief economist Shamubeel Eaqub.

Stats NZ data shows that overall, the average hourly wage for a technician or trade worker in New Zealand is $36.27 an hour for men and $31.95 for women.

Many tradespeople start their own businesses, which may make their income harder to track, Eaqub said, particularly from about year five.

There is also significant variation within degrees. Medical graduates had a $116,000 median income when qualified.

At graduation, engineering and building related technologies was second-highest-paying and management and commerce third.

After five years, health was still the highest paying sector but engineering picked up and IT jumped strongly.

University of Otago associate professor Lynnaire Sheridan said OECD data indicated tertiary educated workers earned twice as much as those who only finished secondary school.

Paying to study or being paid

Another key aspect to account for is time spent studying.

Most university students fund their own studies, which can cost tens of thousands of dollars.

Research published almost a decade ago found that at that point about half of medical students had a loan of more than $90,000.

In comparison, apprentices pay a much smaller fee and earn at the same time.

Plumbing World said apprentices would usually earn between $24 an hour in their first year and $39 in their fourth year.

The commission said level four to seven qualifications had a 56 percent or 57 percent completion rate, depending on whether the programme was work-based, and degree-level qualifications had a completion rate of 60 percent.

What does it mean?

Census data also shows that the higher the qualification a person had, in general, the more they would earn.

But University of Otago economist Murat Ungor said there were some caveats to keep in mind when looking at it.

“First, correlation does not necessarily imply causation. Degree holders may also have higher average ability, greater family support, stronger motivation, or better access to professional networks, all of which can increase earnings independently of education itself.

“Second, the field of study may matter enormously. Degrees in medicine, engineering, economics, or finance are likely to generate much higher average earnings than degrees in some other disciplines, even when both are at the same qualification level.

“Third, not everyone requires a university degree to achieve a relatively high income. Some trades and vocational qualifications also produce strong earnings outcomes. For example, individuals with Level 5 diplomas have a median income of approximately $51,100, well above the median income of those with no qualifications.

“Finally, it is worth noting the position of overseas secondary school qualifications. People with this credential earn a median of $35,700 per year, which performs better than having no qualification but worse than most New Zealand level 2 certificates and above. This may reflect issues with qualification recognition, differences in curriculum standards, or demographic factors such as recent migration and lower English proficiency among some holders.”

He said one interpretation was the university students received considerable private financial returns from their education and should contribute more to the cost.

“However, there is also a strong counterargument that tertiary education generates broad social benefits, including higher productivity, innovation, tax revenue, and social mobility, which provide an economic justification for continued public support.”

He said access to education was not evenly distributed, either. “Financial barriers, family background, school quality, and social inequality all continue to shape educational participation and outcomes.”

Sheridan said there was also evidence of disproportionate unemployment among more highly educated people. “You get a degree and then you tend to be looking for the right role.”

The commission’s data showed that 1 percent of degree-holders are on Jobseeker benefits, compared to 9 percent of people with level one to three qualifications, which are usually obtained at school.

She said both degree-holders and tradespeople were affected by the economy but there was longer-term resilience from higher education.

“It’s more likely you’re able to weather more economic cycles across your entire life.

“Initially yes you have the debt and the cost but longer-term across your career you’ve got greater stability because you’re basing your education on really highly transferable skills like critical thinking and analytical skills.

“That gives you greater reliance, particularly at the moment where there’s such a challenge in terms of what future work will look like. We can’t even predict the jobs that will exist 20 years from now.

“When the economy is really hot, everyone will be doing renovations, building houses, needing that plumber now versus when times are tougher being able to fall back on this other skill set can actually help you create work and generate work within economies not as flush with cash.

“I would say whatever you’re studying and doing, you want to be the best version of that career. A really good plumber will always have a work. A really amazing accountant will always have work. Someone with a university education can pivot.”

Getting out what you put in

Hayley Pickard, managing director of recruitment firm Fortitude Group, said qualifications ended to only be one piece of the puzzle.

“Certain qualifications can absolutely help someone start on a higher salary for example, someone who spends four years at university may enter the workforce on a stronger graduate package because of the qualification they’ve earned.

“But equally, someone who entered the workforce four years earlier may already have built practical experience, developed industry knowledge, and progressed up the pay scale during that same period. In many industries, hands-on experience and proven performance can carry just as much weight as formal education.

“It’s also important to recognise that university or formal qualifications don’t suit everyone. Some people thrive in practical, hands-on environments and build highly successful careers through experience, apprenticeships, trades, or on-the-job learning. That’s why it’s important to look at the bigger picture, rather than judging someone purely on the grades they achieved in education.”

She said earning potential was shaped by education, experience, demand, performance, attitude and willingness to continue to learn.

Robert Walters chief executive Shay Peters said employers were likely to place less emphasis on degrees in future.

“A lot of the grunt work will be done by AI. Recent graduates are finding it tough to get jobs because AI is taking over their roles they’ve got to work through an education provider that’s going to give them practical experience.

“Employers are looking for pretty instantaneous output and productivity.”

He said people who were doing well were those with good human skills, who could work on relationships while technology did the work in the background.

Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make, spend and invest money.

– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand