The Changing Pattern of Graduate Earnings

‘It is sensible to ask whether this massive investment in higher education is economically justifiable’ (Walker and Zhu, 2003)

‘A degree of over-education exists, and the pay penalty associated with it is likely to wipe out

any gains made from being a graduate, specially in the first few years.’ (Connor, 2001)

What kind of predictions are being made about graduate earnings?

• As the number of graduates in the labour market increases, ceteris paribus the earnings premium will fall

• Some degree subjects could attract higher earning premia, others will decline

• The distribution of graduate earnings may widen as the range of ability of graduates widens

• If this happens, the 50% target (persons aged 19-30 years to have experienced HE) may not be achievable

Researching graduate earnings – the sources of information

• Birth cohort studies (1958 and 1970 cohorts, graduated in 1979/80 and 1992, surveyed in 1991 and 1999/2000)

• Labour Force Survey (1993 – present, cross-section of the UK population each quarter)

• Graduate cohort studies (1980 graduates and 1995 graduates)

What does the labour force survey tell us about graduate earnings?

Men

0

2

4

6

8

10

12

14

16

18

20

Age

Ave

rag

e h

ou

rly e

arn

ing

s (

£/h

r)

Non-graduates

Graduates

What does the labour force survey tell us about graduate earnings?

Women

0

2

4

6

8

10

12

14

16

18

20

Age

Ave

rag

e h

ou

rly e

arn

ing

s (

£/h

r)

Non-graduates

Graduates

What do the birth cohort studies tell us about graduate earnings?

Degree premium (males)

Degree premium (females)

26 year olds in 1981 (adj.)

25%* 36%*

26 year olds in 1996 29% 33%

33 year olds in 1991 40% 45%33 year olds in 1999 (adj.)

32%* 31%*

* Indicates that an adjustment has been made for age

What do the graduate cohort studies tell us about trends in

graduate earnings?

• Contrast the survey of 1980 graduates six and a half years on with 1995 graduates seven and a half years on

• Adjust for inflation, slightly different time periods

• Match subject classifications

What is the average real rate of growth of earnings for young degree-

holders and non degree holders

Use Labour Force Survey (1993-2000) to determine the average annual rate of growth of real earnings between

ages 22 and 29 (full-time gross weekly earnings)

Degree No degree

Men 9.7% p.a. 5.3% p.a.

Women 7.9% p.a. 4.9% p.a.

Annual rate of growth of real earning, graduate males

0

2

4

6

8

10

12

14

16

18

>5%decline

3-5%decline

1to 3%decline

>-1%and <1%

1-3%growth

3-5%growth

5-7%growth

7-9%growth

9-11%growth

11-13%growth

13-15%growth

15-17%growth

17-19%growth

19-21%growth

>21%growth

% in

eac

h ca

tego

ry

Male (1980)

Male (1995)

Annual rate of growth of real earnings, graduate females

0

2

4

6

8

10

12

14

16

18

>5%decline

3-5%decline

1to 3%decline

>-1%and <1%

1-3%growth

3-5%growth

5-7%growth

7-9%growth

9-11%growth

11-13%growth

13-15%growth

15-17%growth

17-19%growth

19-21%growth

>21%growth

% in

eac

h ca

tego

ry

Female (1980)

Female (1995)

Annual rate of growth of real earnings, Arts graduates, males

0

2

4

6

8

10

12

14

16

18

>5%decline

3-5%decline

1to 3%decline

>-1% and<1%

1-3%growth

3-5%growth

5-7%growth

7-9%growth

9-11%growth

11-13%growth

13-15%growth

15-17%growth

17-19%growth

19-21%growth

>21%growth

1980 graduates

1995 graduates

Annual rate of growth of real earnings, Arts graduates, females

0

2

4

6

8

10

12

14

16

18

>5%decline

3-5%decline

1to 3%decline

>-1% and<1%

1-3%growth

3-5%growth

5-7%growth

7-9%growth

9-11%growth

11-13%growth

13-15%growth

15-17%growth

17-19%growth

19-21%growth

>21%growth

1980 graduates

1995 graduates

Average annual rate of growth of real earnings by subject of first degree, males

0

2

4

6

8

10

12

14

16

18

1980 graduates

1995 graduates

Average annual rate of growth of real earnings, by subject of first degree, females

0

2

4

6

8

10

12

14

16

1980 graduates

1995 graduates

Graduate earnings – interpreting the evidence

• The ‘graduate premium’ is declining, but only slightly

• A degree is a passport to growth in earnings

• There is no evidence of a widening dispersion of earnings among graduates

• Women are doing better than they did 20 years ago, but still not catching up with men