Otto Leppänen
According to the “Vision for higher education and research in 2030”, initiated by the Ministry of Education and Culture in Finland, one of the main objectives is that at least 50 % of young adults aged 25–34 obtain a higher education degree in 2030. A rationale for this is to have a skilled labour force to maintain a high competitiveness level in the global markets as the comparative advantages and know-how needs change between countries. Therefore, there is an evident need for information about the kind of graduates our higher education system is actually producing.
Measuring the quality of our higher education system is a difficult task, not to mention the various factors that attribute to a high-quality institution. However, it is fair to assume that studying in a high-quality higher education institution and degree program enhances the labour market outcomes of graduates. Now, I have been given the exciting opportunity to investigate the earnings and employment of graduates from different higher education institutions and degree programs from all over Finland using large-scale administrative data for my economics Master’s Thesis at FINEEC.
My research question is:
How have university and polytechnic graduates from different higher education institutions and degree programs performed in the labour market measured in terms of their earnings and employment after graduating?
The results of my research will be partly published in the FINEEC’s evaluation of the Development of the Educational Profiles of Higher Education Institutions.
Why is it important?
Increasing the human capital – the knowledge and skills – of students is one of the core functions of higher education institutions. One way to uncover the human capital accumulation ability of different higher education institutions and degree programs, although by no means exhaustively, is to examine graduates’ earnings and employment rates. As different higher education institutions and degree programs can accumulate different amounts and types of human capital for an individual, this can induce productivity differences across students which can influence their labour market outcomes in terms of earnings and employability differences.
Hence, knowing the implications of higher education choices on labour market outcomes is important for society as it affects the decision making of many stakeholders. For example, before young adults enrol in post-secondary education, they will have to make a choice between different higher education institutions and degree programs. This investment in human capital is perhaps one of the most important decisions an individual makes during his or her lifetime. Therefore, examining the labour market outcomes of different higher education institution and degree program choices are of evident interest for those individuals about to invest in higher education.
Furthermore, studying the labour market outcomes of graduates carries social importance. Policymakers want the publicly funded higher education system to increase the human capital of individuals which is in turn associated with the increased productivity of individuals and companies and hence increased economic growth. Having new information about the earnings and employability of graduates is also essential for education policy when the government and higher education institutions decide on admission quotas for different fields.
The econometric challenge
The main econometric problem in estimating graduates’ higher education choices and their returns arises from the non-random nature of higher education institution and degree program selection. It is ambiguous whether the labour market differences between graduates are due to differences in the chosen higher education institutions and degree programs or because of differences in observable (e.g. school grades and family background) or unobservable individual characteristics (e.g. innate ability, motivation, ambition) between graduates.
To tackle this econometric challenge in my research, the selection problem is attempted to disentangle by controlling for a substantial set of graduates’ observable pre-higher education characteristics, most notably matriculation examination grades, region of origin and parents’ socioeconomic status. Nevertheless, due to the problematic feature of identifying unobservable individual characteristics, the results from the research are descriptive in nature and do not attempt to unfold causal effects of higher education and degree program choices on labour market outcomes.
At any rate, controlling for several observable individual characteristics with high-quality data allows for a more realistic analysis of the incremental value that different higher education institutions and degree programs produce compared to simply examining perfunctory figures of graduates’ earnings and employment.
The availability of high-quality Finnish data
Eventually, the uniqueness of my research derives from the detailed nature of the data, in other words, the fresh extensive data which includes rich information on essential individual attributes. Finland, as well as other Nordic countries, have the availability of large-scale administrative data which is rather exceptional compared to international standards. In essence, the main advantage of the Finnish registry-based data is its high quality in comparison to survey data that is used in many countries when examining graduates’ labour market outcomes.
In fact, I hope my research will provoke more discussion of making better use of high-quality Big Data that is available in Finland for evidence-based public policymaking. In the end, having objective public information available about the actual labour market outcomes of graduates can act as a public good and allow individuals, policymakers and higher education institutions to allocate scarce resources into effective use. This is important especially now as the demand for a higher educated workforce keeps increasing in Finland in the upcoming years.
Before the results come in..
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