Australia needs new university graduates.

The Australian economy is undergoing a major transition. A shift is underway from the mining construction boom era—in which significant resources were applied to the development of our natural resources— to a new phase in our history. We are now faced with the challenge of diversifying our economy and seizing new opportunities through innovation, entrepreneurship and greater integration within our region. The development of our human capital—the skills and smarts of our people—is now a crucial element of Australia’s economic development into the future.

Higher education plays a critical role in developing Australia’s human capital. The ability of our nation to expand the knowledge and skills of our workforce to drive productivity growth is vital if Australia is to raise living standards into the future. While the private benefits of higher education have been well documented, minimal attention has been paid to the associated spillover benefits of higher education to other parts of the workforce and the Australian community.

To fill this knowledge gap, this report estimates the benefits to the wider economy and to workers without a degree when new higher education graduates enter the Australian workforce.

The analysis is based on an application of a computable general equilibrium (CGE) model. The Cadence Economics General Equilibrium Model (CEGEM) is of a genre of economic models that are used extensively by the Australian Government to assess the economy-wide impacts of major policy changes and economic developments. For example, the Commonwealth Treasury undertook a series of assessments of the economic impacts of climate change response policies using CGE models in the early 2000s. The Productivity Commission has also used CGE modelling to consider the impact of economic reforms.

In spite of the obvious advantages of CGE models, which contain all the linkages between employment, tax and consumption, they have not been widely used to capture the spillover effects from new graduates entering the workforce. This report provides a powerful new insight into the positive effects of new university graduates on Australia’s jobs, wages and economic growth.

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