What is an ATAR and what does this have to do with income?

Cross-post from Substack.

Look I’m from New Zealand – so when everyone around me started talking about ATARs I just smiled and nodded.

In fact I probably couldn’t talk to most people in New Zealand about education. I’m from the “pre-NCEA” era – where a single end of year exam for five courses, scaled to fit a within-course normal distribution, determined most of anything. As a result, these more complex design criteria are well outside of my lived experience.

But it turns out ATARs are a very important part of an individuals assessment in Australia – providing a measure of how well a student performed relative to their peers, and determining their university admission.

This raises a question – how is a good performance on your ATARs associated with future earnings? Luckily for us Elyse Dwyer and Silvia Griselda at e61 decided to find out.

tl;dr a higher ATAR is associated with higher average earnings – but there is significant variability in income by ATAR. As a result, even though we’d expect the type of person who receives a higher ATAR to end up with higher earnings at 30, there is a lot more going on under the hood.

ATARs and earnings

The earning profiles of individuals between 19 and 33 are shown below, with each ATAR bucket also conditional on the individual going to university (well except the No Uni one). Lets chat about them

As we can see, the earnings of those who do not go to university is higher between the ages of 19 and 23. Anyone else who went to university when most of their high school mates went to work can attest to this truth – at this stage people love to go on about how they are not earning cash while your still at school.

Nonetheless, continuing education is a form of investment – so you should expect a payoff in future earnings. And that is what you see, all the other lines move above the no university line, showing that the median individual who went to university did end up earning more than the median individual that didn’t – irrespective of their ATAR.

Then it comes time to compare all the other lines. As we can see, the median individual with a higher ATAR earns more as well. And all individuals that used their ATAR for university entry earn more than those who entered through alternative pathways. So what does this tell us?

1. Individuals with higher ATARs may have characteristics that lead to higher income – harder work ethos, greater capability, better family and friend networks.
2. Higher ATARs may allow individuals to select into higher value educational opportunities.
3. There may be a direct return from having a high ATAR on your CV above and beyond everything else.

The note digs into a few more mechanisms, the main thing I want to note is that no-one is saying the higher ATAR itself causes higher earnings – just that there is an association worth further investigation.

And figure 2 shows that these things get more complex – there is significant dispersion in the earnings of individuals at 30 on the basis of their ATAR.

For a specific example, someone in the bottom 25% of earnings for the top ATAR bucket (the 25th percentile) earns less than someone in the 25% of earnings who didn’t go to university. And they earn about the same as the median “below 70” ATAR individual who did go to university!

I remember that I had friends from high school who went straight into work – and now own and run the business they were working at. I had friends who were clued on whose grades ended up a bit below mine, who went to university and earn significantly more than I ever will.

Unlike how high schools make us feel, that final grade doesn’t determine our full life path and opportunities – it influences it, but even if high school went poorly there are opportunities out there.

Not just that – never confuse a grade or your income with your self worth. You matter just as much as someone everyone calls smart, or someone who seems to have limitless resources – and the person who you view as unsuccessful matters just as much as well. Your power comes from being able to make your own choices, and own the outcomes – so make these choices with kindness.

ATARs and the SAT debate

Can this information about ATARs tell us anything about the standardised testing debate in the US at the moment? Probably not, but its worth thinking about.

The ATAR takes an average of course performance – like a GPA does. However, it scales the scores based on measures of how difficult that subject is – which is more similar to the weighting used for an SAT.

Concerns about implicit discrimination and the interuptions from COVID led to a large number of US univeristies dropping SAT requirements. However, the NY Times has come out stating that – relative to other metrics universities can use – standardised testing does appear discriminatory. Specifically, the advantage of advantaged students is starker when comparing GPAs to SATs.

To understand this issue we’d want to think through two issues:

1. Is it important: What is the return associated with gaining university entrance.
2. What drives differential selection by group: What is the reason why individuals from certain backgrounds are not being selected into study – and does that choice influence the benefit or opportunity cost of such study.

To understand the importance of univeristy entrance we’d want some idea of what would have happened to people who gained entrance if they didn’t – or people who didn’t gain entrance if they did.

To understand selection we would want to look into not just university selection criteria, but the nature of applications and the decision to study. If individuals from disadvantaged backgrounds are not studying because of other family responsibilities, then the policy choice of “removing SATs” isn’t really dealing with the lack of opportunity faced by that person – it is instead a lack of material resources to be able to make worthwhile investments in their human capital.

I think the e61 note informs this by showing just how heterogeneous these returns can be – hinting that such investments in the self may be very uncertain. SAT bans don’t do anything about that, and if they do restrict access to scholarships (say due to a shift to sport and GPA based support) they may make access worse for truly disadvantaged individuals.

So I guess the work did provide some insights to this debate after all!