A Cohort Analysis of the Private Rate of Return to Higher Education in Australia

There have been substantial changes in the costs and benefits of investment in tertiary education in Australia in the past twenty years. This paper compares the ex ante private rate of return to investment in a university education based on cross section data, for cohorts studying at the time of the 1986 and 1991 Population Censuses, with the ex post results estimated from tracking a synthetic cohort over time between Censuses. Private rates of return have been estimated for both males and females. These two cohorts have achieved rates of return that are at least as high and often better than those predicted on the basis of ex ante calculations using cross-section data. This is an interesting result for individuals and policy makers evaluating past investment in higher education. The higher ex post return reflects the increasing returns to skill in the Australian labour market over the 1990s that have been documented in other studies. The paper also presents hypothetical results to illustrate the effects of the introduction of HECS and breaks in work history on the private rate of return.