The earning capacity of many young Australians would be significantly higher if they learned a trade instead of going to university, a new report has found.

Key points: The Grattan Institute looks at the earning capacity of university students and those young people who learn a trade

The Grattan Institute looks at the earning capacity of university students and those young people who learn a trade It finds for some people, particularly young men with lower ATAR scores, vocational occupations result in higher earnings

It finds for some people, particularly young men with lower ATAR scores, vocational occupations result in higher earnings The report comes as the vocational education industry is reporting a 43 per cent drop in trade-based enrolments

The report comes as the vocational education industry is reporting a 43 per cent drop in trade-based enrolments One commentator says the idea that university is the only option often comes from parents

The Grattan Institute report found that for men, particularly those who scored lower ATARs at school, vocational qualifications in engineering, construction and commerce resulted in higher average earnings than a degree qualification.

The number of students enrolling in university has swelled by more than one-third over the past decade, with more students with lower ATARs and those from diverse backgrounds now attending.

That increase has come at the expense of vocational education, with the number of students taking up a place in those trades-based courses down 43 per cent in the past five years.

The Federal Government made the issue a key focus of COAG talks last week amid concerns about critical skills shortages. It has also commissioned a review of post-secondary school pathways.

Grattan's higher education program director Andrew Norton said some university graduates were struggling to get jobs, especially if they studied generalist degrees in humanities and science.

This was particularly the case for students with lower ATARs.

"This report is looking at the concern that some low ATAR students, who have been increasing in numbers at university, would have been better off in vocational education," Mr Norton said.

"The report finds that is true in some cases, particularly for young men.

"We find that there is a high risk that they won't get the financial benefits of higher education that higher ATAR students would get, and that they would do well in a range of vocational occupations such as engineering and trades related [to] construction and some commerce type degrees."

But Mr Norton said the picture was different for women.

"By contrast, lower ATAR women who go into nursing and teaching degrees have pretty good employment outcomes, very high rates of professional employment, and we think they'll end up earning a lot more than the women who go into vocational education," he said.

Students growing up with university as only option

Nineteen-year-old Liam Mills enrolled in a university degree earlier this year but left in favour of a TAFE course. He's now studying web development at Hornsby TAFE in northern Sydney.

Liam Mills said he preferred to be at TAFE "behind the computer" than in a theory based class at university. ( ABC News: Brendan Esposito )

"I prefer a much more hands-on approach, so sitting in a lecture wasn't really doing it for me," he said.

"I much prefer being behind the computer."

Mr Mills said he had grown up with the idea that going to university was the only option.

"My choice to go to university was mainly based on what a lot of my friends were doing at the time," he said.

"It was kind of the plan I'd always had basically from starting high school, [but] by the time I got there I realised it wasn't exactly what I wanted."

Many parents still believe university is the 'right route'

The decline in those taking up vocational training comes despite national skills shortages in many of the trades that are predicted to soon become more critical.

It is estimated Australia will need up to a million workers with vocational qualifications by 2023.

The decline in vocational students will be a focus of National Skills Week later this month.

The event's founder Brian Wexham said he believed change needed to come from parents.

"We're faced with this challenge that many, many parents still believe that the right route for their child is to go to university and they will get a more fulfilling and better career, and for some that is true, but of course it's not true for everyone," he said.

"A lot of students are practical learners, they're not academically inclined.

"And frankly I think universities have got a lot to answer for, because they encourage people to go there even if it might not be suitable for them.

"It's been widely reported that some universities have accepted ATARs of 50, and frankly all they're doing is enrolling somebody who's probably destined to fail, and all they end up doing is having a HECS bill, but if you're an apprentice you get paid to learn."

Universities have defended their graduates' employment outcomes in the light of the Grattan report.

Universities Australia chief Catriona Jackson said a low ATAR can be a sign of disruption during a student's Year 12 studies, or which postcode they came from.

"It doesn't predict the destiny of every student, and the vast majority of students who enter university go on to successfully complete their studies," she said.

On graduate jobs and salaries, she said: "University graduates earn up to $1 million more over their lifetimes on average and are 2.5 times less likely to be unemployed than those without a higher qualification.

"Nine in 10 university graduates are in full-time work three years after graduation, and four out of five undergraduates work in professional or managerial roles.

"And the median salary of university graduates three years on from finishing their studies is $70,000."