The Changing Graduate Labour Market: A Review of the Evidence - Technical Report - Professor Phillip Brown School of Social Sciences, Cardiff ...
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Technical Report The Changing Graduate Labour Market: A Review of the Evidence Professor Phillip Brown School of Social Sciences, Cardiff University With Claire Smetherham School of Social Sciences, Cardiff University
TABLE OF CONTENTS
List of Figures iv
List of Tables vi
Executive Summary viiii
Background viiii
Key Findings ixii
Implications for Policy and Future Research xiii
Main Report 1
1. Purpose 1
2. Background 1
3. Findings 4
3.1 What many graduates earn will not match 4
their expectations
3.2 Most graduates will earn more than non-graduates 7
but the ‘premium’ is often much lower than the
50 per cent difference in life-time earnings reported
in the White Paper on The Future of
Higher Education
3.3 There is evidence of significant and growing income 11
differences between graduates in the labour market
3.4 There are significant ‘sectoral’ and ‘occuptional’
differences in graduate/non-graduate earnings ratios 17
3.5 There are significant regional differences in 21
graduate incomes
3.6 Existing research evidence also shows that 23
graduate earnings reflect a number of other factors,
including the status of the university attended, the
degree subject studied, and degree classification
3.7 Major gender differences remain in areas of 30
specialist knowledge, industrial sector, occupational
and income
3.8 Class and ethnic inequalities also continue to be a 35
feature of educational and labour market outcomes
3.9 There is evidence of graduate ‘over-qualification’
but little agreement about how to measure it
3.10 Claims that half of those entering the workforce 40
will require higher education to meet the
requirements of the ‘knowledge’ economy have
iilittle empirical support on either side of the Atlantic.
There is also little evidence to support the view that
Wales is a vibrant knowledge-driven economy
3.11 There is little agreement about the extent or nature 52
of skill gaps in Wales
3.12 There is high degree of integration between the 56
Welsh and English labour market, with considerable
movement of students and graduate employees
across national borders
4. Implications for Policy and Future Research 59
Bibliography 64
iiiList of Figures
Figure 1: Job hunter’s expected starting salaries 5
Figure 2: Average returns to education: Private 7
Real Rates of Return, University-Level
Education, 1999-2007
Figure 3: Male Graduates aged 26 to 35 – net weekly 11
earnings (full-time employees and
self-employed)
Figure 4: Women Graduates aged 26 to 35 – net 12
weekly earnings (full-time employees and
self-employed)
Figure 5: U.S. male hourly wages by decile within 13
educated groups, 1973-2001
Figure 6: U.S. female hourly wages by decile within 14
educated groups, 1973-2001
Figure 7: Estimated net weekly income for full-time 15
employees only, by gender, qualification
and decile (1983-2001)
Figure 8: Average earnings of graduates by degree 27
subject
Figure 9: The occupational distribution of 32
graduates
Figure 10: Distribution of graduates by industry 34
sector
Figure 11: Higher education entrants by social class 35
groups (1960-2000)
Figure 12: Blue chip graduate vacancies in the UK 42
1997-2003
ivFigure 13: Changing occupational structure of male 43
employees in employment, 1975 to 2000
by SOC (HE)
Figure 14: Changing occupational structure of 43
female employees in employment, 1975
to 2000 by SOC (HE)
Figure 15: Job classifications – all UK jobs 47
1971-2010
Figure 16: Percentage changes within categories 48
between periods
Figure 17: Job classifications – all jobs 1971-2010 49
(Wales)
Figure 18: Annual employment increase: 50
head count
vList of Tables
Table 1: Net weekly earnings (full-time employees only) by 9
cohort by gender by qualification level.
Table 2: Graduates and non-graduates: net hourly pay 10
(employees full-time and part-time) 30 Year Olds.
Table 3: Earnings ratio between 10th percentile and 90th 16
Percentile, Wales 1993, 1997 and 2001*
Table 4: Earnings ratio between 10th percentile and 90th 17
percentile, Wales 1993, 1997 and 2001*
Table 5: Net weekly earnings of graduates aged 26-35 18
(full-time workers) by industrial sector [prices/year]
Table 6: Median weekly gross pay between degree holders 20
and those without in the UK (21 years old or older)
1993 and 2001
Table 7: Earnings (£) of graduates in Wales over time 21
compared with other regions
Table 8: Average weekly earnings (£) of full-time graduate 22
employees by region of place of work, and age
Table 9: 'Real' graduate earnings by region 23
Table 10: Top ten worst graduate starting salaries by 25
institution
Table 11: Average annual income of respondents with 26
Firsts by area of degree study (1997 cohort)
Table 12: Table of HE subjects and differences over time (UK) 28
Table 13: Average annual income of respondents by degree 29
classification (1997 cohort)
Table 14: Average annual income of respondents with 30
Firsts by gender (1997 cohort)
Table 15: Average annual earnings of graduates, 1999-2000 31
Table 16: Occupational distribution of graduates by disciplinary 32
background
Table 17: Distribution of employment of graduates by major 33
economic sector
viTable 18: First destinations of full-time degree (home 37
domiciled) graduates from English universities,
2001/02 (percentages are based on known
destinations)
Table 19: Whether a degree was a formal entry requirement 39
for respondent’s current job by degree class
(1997 cohort)
Table 20: Percentage increases and percentage shares of 41
economy compared
Table 21: Employment by education and training category, 45
2000-2010. (Monthly Labor Review)
Table 22: Distribution of full-time graduate employees in the 51
private and public sectors in each region by place
of work
Table 23: Qualifications demand and supply, Wales, 2001 53
Table 24: Patterns of qualification mismatch, Wales and 55
Britain, 2001
Table 25: Particular skills index By region/country, 2001 56
Table 26: The ‘retention’ rate of graduates entering 57
employment by country of domicile and country
of HEI attended
Table 27: Employment destination of UK graduates gaining 57
qualifications in UK IHEs by country of domicile,
country of IHE and location of first destination
viiExecutive Summary
Background
The Westminster Government has primarily justified the expansion and future
funding of higher education on economic grounds. It is assumed that there is
a growing demand for high skilled workers and that graduates typically earn
significantly more than non-graduates.
The purpose of this report is to ensure that a comprehensive review of the
available evidence is conducted to enable the National Assembly of Wales to
develop an effective and fair system of student support.
This review examines evidence from across the UK, given that many Welsh
graduates are likely to work outside of the Principality at some stage in their
working lives. International comparisons are limited to the United States.
The evidence presented in this report is based on survey data to examine
trends in the demand for graduates in Wales and beyond. It also investigates
trends in graduate incomes. It goes beyond an analysis of rates of return
between graduates and non-graduates to include differences amongst those
with graduate qualifications. Gender differences are also examined, as
existing evidence shows that although there are more women in higher
education, men typically earn higher incomes.
One of the major problems in undertaking this research is the lack of
adequate data on graduate employment in Wales. Most large-scale data sets
for the United Kingdom have relatively small samples at the regional level that
make it difficult to assess their reliability when attempting to generalise about
graduate employment in the Principality.
The evidence on graduate employment and income is more complex than the
headline figures suggest. There are also conceptual confusions and disputes
as to what constitutes a ‘graduate’ job or ‘over-qualification’. Therefore, the
evidence presented in this report should be treated as indicative rather than
conclusive. However, its general findings raise serious doubts about the
claims made about graduate earnings and employment trends in the White
Paper on the Future of Higher Education that informed new legislation on the
future funding of higher education in England.
viiiKey Findings
· What many graduates will earn will not match their expectations. On
average, students expect to earn around £19,000 in their first job after
university. While this seems to be in line with what many large
graduate employers offer, the Higher Education Statistical Agency
(HESA) reported an average of £17,000 per annum in 2003 (including
full-time and part-time), and the NatWest survey reported a seven per
cent rise in graduate starting salaries from £12,659 in 2003 to £13,600
in 2004.
· Most graduates will earn more than non-graduates but the ‘premium’ is
often much lower than the 50 per cent assumed by the Westminster
Government. Based on a new analysis of longitudinal data, the lifetime
difference between the median graduate and non-graduate was
£166,000 (net income). In 2000, the median graduate earned 36 per
cent more, rather than the 50 per cent premium reported in The Future
of Higher Education (2003:59). It also shows that higher earning non-
graduates earned 17 per cent more than the median graduate and 80
per cent more than low earning graduates. None of these figures take
into account the financial costs of a university education.
· There is evidence of significant and growing income differences
amongst graduates. Drawing on the same data set as above,
differences within the graduate category were found to be twice that
between graduates and non-graduates. This amounts to a £374,000
lifetime difference between median and high earning graduates [..].
Other evidence from the General Household Survey shows that top
earning male graduates are racing away from the rest, although this
was not the case for women. Data from the United States also show
that high earning graduates have pulled further away from the rest, but
unlike the British data, it also shows that high earning female graduates
have made the most significant gains.
· There is little evidence of a significant decline in graduate earnings, but
there is also no evidence that the ‘knowledge’ economy has increased
the value of human capital for graduate employees. On both sides of
the Atlantic, it is only high earning graduates that have enjoyed a
sizable increase in real income over the last years.
· Labour Force Survey data points to significant ‘sectoral’ and
‘occuptional’ differences in graduate/non-graduate earnings ratios. In
Wales, this data suggests that these differentials may be narrowing,
especially for graduates on lower incomes. However, the small size of
the sample means that this finding needs to be treated with caution,
although there is clearly a need for further research.
ix· Major gender differences remain in areas of specialist knowledge,
industrial sector, occupation and income. Research shows that female
graduates in their early twenties receive on average 15 per cent less,
and the gender gap appears to widen with age. Female graduates are
almost twice as likely to work in the public sector and dominate in
education and other public services, while men dominate in
manufacturing and construction. However, women have made
considerable progress in gaining access to the professions.
· Class and ethnic inequalities continue to be a feature of educational
and labour market outcomes. Recent studies show that ethnic minority
students are now more likely to participate in some form of higher
education than the white population. However, they are more likely to
be found in low-status institutions and confront disadvantage within the
job market. On first destination, the unemployment rate for white
graduates was six per cent but just over 11 percent for ethnic minority
groups. However, there are also significant differences within the ‘non-
white’ category.
· Research also shows that those from higher socio-economic groups
are more likely to be in managerial and professional jobs traditionally
associated with a university degree. It also shows that those who
studied near the family home or returned ‘home’ after graduation to
save money had particular difficulty finding suitable employment. It
should also be remembered that the impact of class and ethnic
inequalities are often hidden because they are ‘institutionalised’. While,
for example, leading companies do not directly discriminate against
those from working class backgrounds or those of Caribbean descent,
they are less likely to attend the elite universities from which these
companies frequently recruit.
· There are significant regional differences in graduate incomes. The
major difference is between London and the South East, compared to
other regions. The median income for graduates between the ages of
20-34 in Wales was £19,292, whereas the figure for London was
£25,012 in 2002. The median for all regions was £21,474. These
differences reflect the pattern of employment in various parts of the
United Kingdom. Half of all full-time graduates in Wales work in the
public sector, whereas it is less than a quarter in London and a little
under 40 per cent in the North West of England and Scotland.
A more detailed analysis of regional difference in earnings show that
while ‘managers and senior officials’ in Wales are paid less (on
average) than anywhere else in the UK, those in ‘personal service
occupations’ or in ‘administrative and secretarial occupations’ fare
considerably better when compared to other regions. Moreover, when
cost of living is taken into account, graduate earnings in Wales move
from ninth to third behind the North and Yorkshire and Humberside,
‘Greater London’ moves from second to bottom.
x· There is also evidence that differences in graduate earnings reflect the
status of the university attended, degree subject and degree
classification. The existing evidence shows that those in ‘older’
universities have an earnings premium of at least 10 percent over
those from other institutions of higher education. It also shows that
what undergraduates study at university can have an impact on
occupational earnings. Both males and females with degrees in the
fields of Maths and Computing and Medicine and Related Subjects had
the highest incomes, while those with Humanities, Arts and Education
degrees the lowest. However, there were important gender differences,
as men are shown to earn more than women in all subject areas.
· Recent research has also compared the earnings of graduates with
first class degrees against those with degrees classified as lower
second class. On average, those with first class degrees were not only
found to earn more, but also more likely to be in a job that utilised their
knowledge and skills than those with lower second class degrees.
However, this research also confirms the importance of gender - as the
average income for women with first class degrees was similar to men
with lower second class degrees, while men with a first enjoyed a
significant premium over the rest.
· It was difficult to find evidence on the graduate premium for part time or
mature learners. This is an area that requires further investigation.
· Claims that half of those entering the workforce will require higher
education to meet the requirements of the knowledge economy finds
little empirical support on either side of the Atlantic. Official data from
the United States shows that occupations requiring a Bachelor’s
degree or higher is predicted to increase by less that 2 percentage
points, from 20.7 to 21.8 per cent between 2000-2010. A re-analysis of
the occupational data in the UK also shows that the proportion of
‘knowledge’ workers will increase from 28 per cent in 1999 to 29 per
cent in 2010. The figures for Wales were expected to remain constant
at 24 per cent. Other evidence based on data from the Association of
Graduate Recruiters, which represents many of Britain’s leading
employers, shows considerable fluctuation in the demand for
graduates. Vacancy levels in 2002/03 had not recovered from a high of
25,000 in 1997/98.
· Regional differences in the demand for skills are subject to contrasting
interpretations. Evidence drawn from the British Skills Survey suggests
that in 1992, jobs in Wales required better qualifications, needed more
training and took longer to learn than jobs elsewhere in Britain. But
over the last decade, jobs in Britain have generally become more
skilled, yet in Wales the trend has been in the opposite direction.
xiAgain, these conclusions are based on a very small sample that
highlights the urgent need for more research. Other research suggests
that there is no evidence that Wales is falling behind other regions of
the United Kingdom.
· A number of studies have found that approximately 30 per cent of
graduates are ‘over-qualified’ in terms of what is required to fulfil their
current employment. However, there are different measures of ‘over-
qualification’ that have led researchers to report findings varying from
10 to almost 50 per cent. Studies that report over-qualification at the
higher end are usually based on the first jobs that are entered after
graduation. Virtually all studies show that this mismatch declines as
graduates gain more work experience, but there is little evidence to
support the claim that employers will ‘grow’ jobs to utilise this untapped
supply of higher level skills. Further research is required to examine
whether over-qualification has increased with the expansion of Higher
Education.
Implications for Policy and Future Research
· This report has focused on the relationship between higher education
and the labour market. While the contribution of higher education to
individual prosperity and economic competitiveness is of obvious
importance, this analysis needs to be considered alongside the wider
personal and social benefits of learning within higher education.
· Although it is legitimate to talk about higher education in Wales or the
Welsh economy, they are inextricably linked to institutional
arrangements in England. Many Welsh students study and work in
England, although many return to the Principality. Ultimately, changing
the system of higher education in Wales depends on changing the
system in England. Therefore, the room for manoeuvre in terms of
policy reform in Wales is constrained by these broader considerations.
· Much of the debate about ‘graduate’ employment is based on outdated
assumptions. The idea of a ‘graduate job’ had some validity in the
1960s as many of the ‘elite’ that entered university found themselves
on ‘fast track’ management training programmes or in the established
professions such as law and medicine. It also provided a useful ‘short
hand’ for jobs that offered high salaries, good promotion prospects,
high social status and job security. While this picture of graduate
employment may remain dominant in the brochures of leading
graduate employers, it is far removed from the occupational realities
confronting many graduates.
· The evidence presented in this report highlights the problem of using
data from organisations such as the Association of Graduate
Recruiters (AGR), as representative of all graduates. The majority of
graduates do not work for leading ‘blue chip’ companies but for small
xiiand medium sized organisation which typically have lower salaries and
fewer prospects for internal promotion. But it also highlights the danger
of using ‘average’ incomes which obscure the realities of today’s labour
market, and that reveal large differences in the incomes of people with
the same level of education.
· The evidence presented in this report shows that it is misleading to
assume that a university degree is the route to high skilled, high waged
employment. While some graduates are able to capitalise on their
higher education to secure managerial and professional jobs, many
others are forced to enter jobs for which they are over-qualified and
under-paid (in terms of the expectations of what they thought a
Bachelor’s degree would deliver). The prospect of significant debt
resulting from their ‘investment’ in higher education will only add to a
feeling that the ‘system’ has let them down.
· While the abolition of university fees has been ruled out by the current
Labour Government in Westminster, the findings of this report suggest
that a better way needs to be found to share the ‘risks’ involved in
pursuing higher education. The issue of shared risk must also take into
account periods of economic downturn and rising graduate
unemployment.
Given the current limitations on what a viable system of funding for
higher education in Wales could look like, one option is to adopt the
principle of ‘no win, no fee’. This has the major advantage over the
English system of removing the sense of personal debt. There is no
personal debt attached to an individual who has been through higher
education in Wales (although it may be difficult [..] to apply this to
Welsh students who study in England). But if an individual is in
employment that meets the appropriate earnings threshold - if they
‘win’ in the sense of earning a significant graduate premium - they will
pay a ‘knowledge dividend’ through the tax code while they are earning
at that level. They would continue to pay this dividend until both fees
and state support with subsistence are covered. Those from deprived
backgrounds could be offered non-repayable grants to cover part of
their subsistence costs or fees, and the overall amount payable could
be adjusted for those working in ‘key’ services.
· This report also highlights the need for a major review of social and
economic data sources within Wales. It is essential that the Labour
Force Survey, British Skills Survey, etc. include a significant Welsh
sample to better understand trends in employment and the labour
market within Wales, and how these compare with trends in other parts
of Britain and beyond. There is also a need to coordinate all the
research on education, skills and employment that is currently being
conducted on Wales.
xiii· Further international comparative research is also required. Virtually all
the developed economies have pursued the same skills agenda in the
belief that advanced knowledge and skills are the key to economic
competitiveness. However, how the supply of graduates is absorbed
(or not) into national labour markets and its consequences for graduate
incomes, employment and career prospects is an important area for
future research.
· The expansion of higher education has been largely welcomed, but
there has been little research on the impact of mass higher education
on the labour market in Wales and England. An unintended
consequence may be to further disadvantage those without a degree,
as employers asked for degree level qualifications for jobs that were
previously taken by those who had not entered higher education. This
is also an issue that requires further investigation.
xivMain Report
1. Purpose
The purpose of this report is to conduct a comprehensive review of graduate
employment in both Wales and beyond, to enable the National Assembly of
Wales to develop an effective and fair system of student support.
This report also considers implications for policy and identifies areas for future
research.
2. Background
The Westminster Government has primarily justified the expansion and future
funding of higher education on economic grounds. It is assumed that there is
a growing demand for high skilled workers and that graduates typically enjoy
a significant knowledge dividend compared to non-graduates.
Existing research evidence has already called into question government
assumptions about the relationship between education, jobs and rewards1 If
Wales is to develop an effective and fair system of student support, it will
need to be evidence-based. There is a need for a systematic review of the
evidence, both within Wales and throughout the UK. This focus is not only
important as a ‘benchmark’ for Wales, but because large numbers of Welsh
students work in other parts of the UK at some stage in their working lives.
This research will investigate a number of large-scale quantitative data sets in
order to examine trend data in the demand for graduates in Wales and
beyond. It will also investigate trends in graduate incomes. This will go
beyond an analysis of rates of return between graduates and non-graduates
to include differences amongst those with graduate qualifications. Gender
differences will also be examined, as existing evidence shows that although
there are more women in higher education, men typically earn higher
incomes.
This report is based on evidence derived from seven Briefing Notes
commissioned to examine various facets of the changing graduate labour
market, and different data sets applicable to Wales and the UK. However, this
report is not limited to the findings presented in the Briefing Notes, and its
findings do not necessarily reflect the views of their authors. There is no
attempt to arrive at a ‘consensus’ as to the nature of graduate employment,
future earnings or occupational trends. Indeed, we felt it important to reflect
some of the conflicting evidence and contrasting interpretations of the
changing graduate labour market.
While this report presents an overview of the key issues, it should be read in
conjunction with the briefings notes that offer a more detailed account of the
complexities confronting researchers and policy-makers in this field.
1The briefing notes are as follows:
Briefing No.1. A re-analysis of the evidence used by the government in
support of changes in student funding in english
universities
Dr Anthony Hesketh, School of Management, Lancaster
University.
This briefing paper is based on a re-analysis of the data used by the
Government in support of the introduction of tuition fees in England, including
the idea that 80 per cent of new jobs would require graduate level skills and
the claim of a 50 per cent graduate premium. The existing classifications of
occupations and future skill demands in Wales and the UK are re-analysed to
get a clearer picture of what constitutes ‘knowledge’ or ‘graduate’ work and to
assess future trends.
Briefing No.2. Education and the knowledge economy: some
observations on the debate over graduate Incomes
Prof. Hugh Lauder, School of Education, University of Bath.
Dr. Muriel Egerton, Institute for Social and Economic
Research, University of Essex.
Prof. Phillip Brown, School of Social Sciences, Cardiff
University.
This briefing paper offers a new analysis based on data from the National
Child Development Study, British Cohort Study and the General Household
Survey. These data are used to examine the relationship between
qualifications and income. Different data sets are harmonised to examine
trends in graduate incomes over the last decade for both males and females.
It also considers variations in the findings from different data sets, and what
these data can and cannot tell us about changes in graduate incomes over
time. The evidence presented in this briefing serves to question some of the
core assumptions of what is known as the ‘skills bias’ thesis.
Briefing No.3. A review of the literature on graduate employment,
underemployment and unemployment
Claire Smetherham, School of Social Sciences, Cardiff
University.
This paper reviews the existing research literature and findings on graduate
employment, underemployment and unemployment. It includes a discussion
of class, gender and racial differences where applicable. In addition, it
examines the conceptual confusion that currently exists around the idea of a
‘graduate’ job, ‘graduate glut’ and ‘new’ graduate occupations.
2Briefing No.4. Graduate Pay in Wales
Dr Johnny Sung, Centre for Labour Market Studies, University
of Leicester.
Prof. David Ashton, Honorary Professor, School of Social
Sciences, Cardiff University.
This briefing is based on a new analysis of the Labour Force Survey,
comparing the incomes of graduates and non-graduates in Wales and the UK
over time. It examines changes in the relative pay of graduates based on
gender, age, industrial sector and occupation. It also investigates within group
difference in graduate earnings.
Briefing No.5. An Analysis of Graduate Demand, Employment and
Income Wales.
Prof. Ralph Fevre, School of Social Sciences, Cardiff
University.
This briefing investigates the available evidence within Wales on graduate
demand, incomes and employment, including an analysis of higher education
and labour market statistics for the Principality. It also presents a regional
analysis of Wales and the English regions that challenges some of the
existing accounts of the relative performance of Wales within the UK.
Briefing No.6. The Geography of Work Skills: A Focus on Wales
Prof. Alan Felstead, Centre for Labour Market Studies,
University of Leicester.
This briefing presents new evidence on the skills demanded and used at
work, drawing on the British Skills Survey data for the nine English regions,
Wales, and Scotland. The paper also tracks how skill demand indicators have
changed over the last decade. Particular attention is paid to the relative
performance of Wales.
Briefing No.7. Welsh Graduates and the Welsh Labour Market
Mike Tomlinson, School of Social Sciences, Cardiff University.
This briefing reviews the first destination data relating to Welsh graduates,
including income and occupational differences related to institution, gender
and ethnicity. It also examines the flows of Welsh graduates working in Wales
and England.
33. Findings
3.1. What many graduates earn will not match their expectations.
On average, students expect to earn around £19,000 in their first job after
university.2 This is expected to rise to £29,500 after five years.3 A recent study
of student expectations found that 89 per cent agreed that the money spent
on their education was a good investment in their future, although 62 per cent
also agreed that the increasing numbers of graduates entering the job market
will make it harder to get a job.4
Figure 1: Job hunter’s expected starting salaries:
25%
Percentage of finalists %
20% 20%
20%
17%
15%
15%
10% 9%
7%
6%
5% 4%
0%
less than 12,500- 15,000- 17,500- 20,000- 22,500- 25,500- 30,000 or
12,500 14,999 17,499 19,999 22,499 24,999 24,999 more
Salaries £
.5
Source: The UK Graduate Careers Survey 2004, High Fliers Research/The Times
Figure 1 shows considerable variation in what graduates expect to earn in
their first job, with 10 per cent expecting to earn over £25,000 and 22 per cent
less than £15,000. Therefore, almost a quarter of graduates did not expect to
reach the threshold set by the English Government for the repayment of
university fees.
However, when graduate expectations are compared to actual salaries, we
still find that many graduates will earn less than they expect. The Higher
Education Statistical Agency (HESA) reported an average of £17,000 per
annum in 2003 (including full-time and part-time), but the NatWest survey
reported a 7 per cent rise in graduate starting salaries, from £12,659 in 2003
to £13,600 in 20046. However, the Association of Graduate Recruiters that
represent leading blue chip organisations reported a median starting salary of
£21,000 in 2004.7
4The reported differences in starting salaries found in these surveys reflect the
problem of collecting accurate information for the full range of graduates
within the labour market, and also highlight the problem of interpretation. It is,
for example, difficult to assess whether a low starting salary reflects the
realities of the labour market for graduates or a personal decision to find
temporary employment before looking for a ‘graduate’ job.
What is unequivocal is the fact that graduates will enter the labour market with
increasing personal debt, although there are different estimates concerning
the extent of their indebtedness. According to recent figures from NatWest,
which roughly match other estimates (e.g. NUS) but exceed government
calculations, the average graduate debt has risen by £4,055 since 2003 to
£12,1808. Five years ago, it was £3,700. The proportion of graduates
leaving university with debts of more than £10,000 has almost doubled, from
31 per cent in 2003 to 59 per cent in the summer of 2004. A third believe it
will take them more than 10 years to pay off their university debts, an increase
of 13 per cent on those surveyed in 2002. This year’s new students believe
that they will have to find £950.32 a month to cover essentials such as rent,
food and books, which means that they will require £26,000 to cover
university expenses over a three-year degree. According to students
interviewed for the NatWest study, the overall cost of a three-year degree now
stands at £23,800, up from £19,400 last year.
The latest survey figures from Barclays Bank show that student debt has risen
five-fold since 1994.9 The average student now leaves HE owing £12,069
through credit cards, bank and student loans. Barclays warned that if the
current trend continues, average student debt could top £33,708 after a three-
year degree by 2010, taking into account plans to charge variable tuition fees
of up to £3,000 a year from 2006.10
Finally, the Student Living Report 2004 found that the average debt that
students expected to leave university with has risen to £9,341 in 2003, a £525
increase from 2002 and a £1,208 increase from 2001.11 Similar findings were
reported in the DfES study by Callender and Wilkinson, which showed that
anticipated average debt on graduation increased by two and a half times
since 1998/99 to £8,666.12 Half of all final year students anticipate leaving
university with debts averaging over £9,673.
3.2. Most graduates will earn more than non-graduates, but the
‘premium’ is often much lower than the 50 per cent difference in
life - time earnings reported in the White Paper on The Future of
Higher Education
It is widely claimed that university graduates enjoy a significant wage premium
over non-graduates that more than compensate for any loss of earnings or the
cost of fees and subsistence while at university. The White Paper on the
Future of Higher Education in England states ‘Those who have been through
higher education in the UK earn, on average, 50 per cent more than those
who have not, and the rate of return from higher education in the UK is higher
than
5in any other OECD country’.13 At the time when the Higher Education Bill was
going through parliament there was much talk of a £400,000 graduate
premium in lifetime earnings compared to those who had not gone to
university.14
Figure 2: Average returns to education: private real rates of return,
university-level education, 1999-2000
20
18
16
14
12
10
8 men
6 w omen
4
2
0
m
k
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a
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at
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U
Note: The average rates of return to tertiary education are calculated by comparing the benefits and
costs with those of upper-secondary education.
15
Source: Blöndal, S., Field, S., and Girouard.
Figure 2 shows the rates of returns to education for individuals with university
level education in a number of countries. Although this figure shows that the
rate of return is higher for university graduates than non-graduates in all the
selected countries, the value of the credential premium is subject to significant
variation between countries. The returns to men in Britain is shown to be over
twice those for Italy, Japan and Canada.
There are a number of problems with this evidence. Firstly, variations in the
returns to education in different countries highlight the fact that the
relationship between credentials, jobs and rewards is far from straightforward.
It is difficult to believe that knowledge and skills are valued less in Japan,
Germany and Sweden than in Britain and the United States. Secondly, the
figures for Britain and the United States may not reflect the higher value
attached to ‘knowledge’ but the inferior quality of job opportunities for non-
graduate jobs, compared to those available in other countries.
6Thirdly, the graduate premium is based on past returns and there are no
guarantees that future returns will remain constant or increase.16 Indeed, the
more the domestic and global supply of highly qualified people increases, the
greater the chances that graduate incomes may decline over time.17 Fourthly,
much of the evidence is based on the ‘average’ graduate, but as we will show,
this ignores significant differences in the ability and willingness of graduates to
cash in on their investment in their ‘human’ capital.18 Finally, one-off surveys
of rates of return offer little indication of trends over time, and especially the
impact of educational expansion on graduate and non-graduate incomes. For
this we require longitudinal data that is not readily available. To overcome this
problem a number of new analyses were commissioned. The first is based on
the National Child Development Study (NCDS), the British Cohort Study
(BCS70) and the General Household Survey (GHS) (For a detailed discussion
see Lauder, et al. Briefing No.2).
Table 1 shows a clear gradient in earnings by qualification, although both
males and females with two+ A levels earn more than those with sub-degrees
such as HNDs or Foundation degrees. In 2000, those with a degree or higher
earned 47 per cent more than those with no formal qualifications and 19 per
cent more than those with two+ A levels. The premium for female degree
holders was 58 per cent when compared to those without qualifications,
dropping to 19 per cent compared to those with two+ A levels.
Lauder and his colleagues also show that graduate weekly earnings are
higher in 2000 than 1991, with the percentage increase greater for women,
although women earn less than men in all categories. While women’s
earnings have broadly increased, that of non-graduate men has declined,
except for the lowest qualified, who may have gained from the introduction of
the minimum wage. However, this increase in graduate earnings is primarily
due to longer work hours, rather than an increased demand for skill. Over the
1990s, there was a four-hour increase in working hours (amounting to an
extra half-day’s work per week).
7Table 1: Net weekly earnings (full-time employees only) by cohort by
gender by qualification level
Women Men
Qualification 1991 2000 Difference 1991 2000 Difference
2000-1991 2000-1991
None 162 199 37 219 256 37
Below CSE grade 1 179 198 19 255 249 -6
O-levels and CSE 1 201 218 17 269 263 -6
1 A-level and NVQ3 208 220 12 286 283 -3
2+ A-levels 254 265 11 339 316 -23
Sub-degree 255 260 5 324 307 -17
Degree and higher 299 314 15 368 377 9
All 225 248 23 294 290 -4
N 1622 2580 3538 3909
Source : NCDS (1991) and BCS70 (2000):earnings adjusted to April 2001 prices. Briefing No.2
Table 2: Graduates and non-graduates: net hourly pay (employees
full-time and part-time) 30 year olds.
All All Women Men
1991 2000 1991 2000 1991 2000
Below Degree Low 3.6 3.7 3.4 3.6 4.0 3.9
Median 5.4 5.5 4.7 5.2 6.0 5.7
High 8.8 8.8 7.7 8.2 9.4 9.4
Degree or higher Low 5.1 4.9 5.0 4.6 5.4 5.3
Median 7.8 7.5 7.7 7.0 8.1 7.9
High 12.0 12.0 11.3 10.8 12.5 13.0
Source : 1991 National Child Development Study 1958 and 2000 British Cohort Study 1970
Wages indexed to April 2000 prices. Sample does not include the self-employed.
Low =10th percentile, High = 90th percentile. Adjusted for age (see Briefing No.2)
If we now analyse this data based on net hourly earnings (and adjust the
figures to take into account age differences between the two samples) we find
that median earnings for both male and female graduates have experienced a
slight decline in real earnings.
In terms of the graduate premium, the lifetime difference between the median
graduate and non-graduate was £166,000 (net income). In 2000, the median
graduate earned 36 per cent more, rather than the 50 per cent premium
reported in The Future of Higher Education (2003:59). However, this
represents a 17 per cent decline, from a premium of £200,000 in 1991 (a drop
from 44 per cent to 36 per cent) in the differential between the median
8graduate and non-graduate. Table 2 also shows that high earning non-
graduates achieved a 17 per cent advantage over the median graduates (a
lifetime difference of £108,000) and 80 per cent more than low earning
graduates.19 This analysis clearly demonstrates the problem of basing our
understanding of graduate incomes on the ‘typical’ graduate, a problem
further highlighted when we examine differences in earnings amongst those
with graduate qualifications.
3.3. There is evidence of significant and growing income differences
between graduates in the labour market
Drawing on the same data set, Lauder and his colleagues also found that the
differences in graduate earning were twice as large as those found between
graduates and non-graduates. This amounts to a £374,000 lifetime difference
between median and high earning graduates, which equates to a 60 per cent
difference. Since 1991, there has been an increase in graduate income
differentials, although this was slightly larger for males when the earnings of
median and high earning graduates are compared. A review of the evidence
on graduate earnings in the UK by Green et al. also found that the variance of
graduate pay has increased since the mid-1980s.20
When broken down according to the 90th percentile (High), the Median and
10th Percentile (Low), a new analysis of the General Household Survey of
those between the ages of 26 and 35 also found that top earning male
graduates were racing away from the rest, although this was not the case for
women (see Figures 3 and 4).
Figure 3: Male Graduates aged 26 to 35 - net weekly earnings
(fulltime employees and self-employed)
1200
1000 Lowest decile
800 Median
600 Highest decile
400
200
0
1983-84 1991-92 2001
Source: General Household Survey (Crown Copyright) earnings adjusted to 2001 prices.Briefing No.2
9It can be seen from the above figure that for low earning male graduates there
was an increase in earnings between 1983/4 and 1991/2, but a slight decline
between 1992/3 and 2001. For median earners there was an increase across
the years, while for high earners there was a substantial increase between
1983/4 and 1991/2, after which their incomes take-off. Overall, the differences
in income between high, median and low earners increased.
For women the trends are different. For all income earners there is an
increase between 1983/4 and 1991/2, thereafter incomes remain the same for
low and median earners, while there was only a slight increase for high
earners unlike their male counterparts. However, differences between high,
median and low earners increase throughout this period for female graduates.
Figure 4: Women graduates aged 26 to 35 - net weekly earnings
(full- time employees and self-employed)
1200
1000
Lowest decile
800 Median
600 Highest decile
400
200
0
1983-84 1991-92 2001
Source: General Household Survey (Crown Copyright); earnings adjusted to 2001 prices. Briefing No.2
Data from the United States also show that high earning graduates have
pulled further away from the rest, but unlike the British data, it also shows that
high earning female graduates have made the most significant gains.
Based on evidence from the US, Figures 5 and 6 give a very different picture
to the mantra of ‘learning is earning’. Indeed, if the idea of a graduate
premium was calculated on the economic value of a college degree in 1973
as opposed to its current market value, the ‘headline’ story would look very
different. These figures show that it is only male and female college
graduates in the ‘higher earner’ category that enjoyed any growth in real
income since 1973. In other words, the vast majority of college graduates
have received no additional ‘premium’ on their investments in their human
capital compared to those in the 1970s, although they continue to earn more
than employees without a college education.
10Figure 5: US male hourly wages by decile within educated groups,
1973-2001
$50
$45
$40 HS low
H $35 HS median
ou $30 HS High
rly $25 College low
w $20 College median
$15 College high
$10
$5
$0
1973 1977 1981 1985 1989 1993 1997 2001
yea
Note: low, median and high earners refer to, respectively the 10th, 50th and 90th percentile wage.
Source: Lawrence Mishel, Jared Bernstein, Heather Boushy, The State of Working America 2002/2003
Economic Policy Institute.
Figure 6: US female hourly wages by decile within educated groups,
1973-2001
$35
$30
HS low
$25
H HS median
HS High
ou $20
College low
rly $15
College median
w
$10 College high
$5
$0
1973 1977 1981 1985 1989 1993 1997 2001
yea
Note: low, median and high earners refer to, respectively the 10th, 50th and 90th percentile wage.
Source: Lawrence Mishel, Jared Bernstein and Heather Boushy. The State of Working America
2002/2003 Economic Policy Institute.
11But even here the nature of the graduate premium is in question, as high
earning non-college students were better paid than those college graduates
on median incomes (although the differential has narrowed in recent years).
As in Britain, female college graduates continue to earn less in each
equivalent category than males, but perhaps the most striking difference is the
way male and female top earners have raced away from the rest. In the
United States, they now earn over twice as much as the median college
graduate of the same sex. This underlines the need to avoid talking about the
‘average’ college or university graduate, for when it comes to rewards within
the job market, some graduates are far more equal than others.21
Returning to the UK, the complexity of the changing relationship between
credentials, jobs and reward can again be shown by drawing on data from the
General Household Survey. Here we find that while the incomes of low
earning graduates and median non-graduates rose during the 1980s, the
picture changed in the 1990s. While the non-graduate incomes continued to
rise for both women and men, they remain virtually static for male graduates
on low incomes, and actually fell for low income female graduates (see Figure
7).
Figure 7: ‘Estimated net weekly income for full-time employees only, by
gender, qualification and decile (1983-2001)
275 275
249
234 237 Women Lowest
225 228
decile graduate
211 Women Median non-
203 201 205
graduate
179 Men Lowest decile
175
graduate
150 Men Median non-
142 graduate
125
1983-84 1991-92 2001
Source : General Household Survey (Crown Copyright). Briefing No.2
Evidence for Wales outlined in Briefing No. 4 by Sung and Ashton also
provides evidence of the contrasting fortunes of graduates within the labour
market. Based on the Labour Force Survey, they calculate the ratio which
measures the difference between the earnings of those at the bottom of the
labour market, at the 10th percentile, and those at the top of the labour
12market, at the 90th percentile (See Table 3). For example, the gross earnings
of graduates at the 90th percentile in 1993 was £538 per week, divided by
those at the 10th percentile of £192 per week, produces a ratio of 2.80. By
1997, this had increased to 5.56, falling back to 4.21 in 2001. Why the
incomes for low earning graduates (10th percentile) drop dramatically in 1997
is not altogether clear, but it does suggest that despite a modest recovery by
2001, they were earning less than in 1993. At the same time, high earning
graduates (90 percentile) witnessed an acceleration in income between 1993
and 1997 which has remained constant. This evidence suggests a significant
widening in earnings differential between those at the top and bottom of the
graduate labour market since the early 1990s. This adds further support to the
argument that high earners were putting more distance between themselves
and other graduates.
Table 3: Earnings ratio between 10th percentile and 90th percentile,
Wales 1993, 1997 and 2001*
A B B/A
10 percentile 90 percentile
1993 192 538 2.80
With a degree
1997 121 673 5.56
2001 160 674 4.21
1993 55 375 6.82
Without a degree
1997 62 408 6.58
2001 89 475 5.34
*Earnings – gross weekly pay in main job
Source: Labour Force Survey, Sung and Ashton, Briefing No.4
For the non-graduates, there is a different story in Wales. In 1993, the
differential between those at the top and those at the bottom was much
greater than that for graduates, namely a ratio of 6.82. But by 1997 it had
fallen to 6.58, and by 2001 to 5.34, an overall decrease of –1.48. Therefore,
while the difference between the high earning and low earning graduates
increased over this period, that between the non-graduates decreased.
13Table 4: Earnings ratio between 10th percentile and 90th percentile,
Wales 1993, 1997 and 2001*
A B B/A
10 Percentile 90 percentile
Male 1993 250.00 577.00 2.31
degree 1997 173.00 750.00 4.34
2001 231.00 712.00 3.08
Female 1993 125.00 442.00 3.54
degree
1997 100.00 528.00 5.28
2001 127.00 577.00 4.54
* Earnings = gross weekly pay in main job
Source: Labour Force Survey, Sung and Ashton, Briefing No.4
There are important gender differences in the Welsh context that are revealed
in Table 4. This table shows data for male and female graduates that highlight
major differences in the incomes of top earning graduates at the 90th
percentile. It also shows that the differences in the earnings of high and low
earning female graduates were greater than those for men. Although not
shown in the above table, these ratios changed the longer graduates were in
the labour market. The ratio for 30 year old male and female graduates
increased from 3.52 to 4.82 between 1993 and 1997, but fell back to 3.32 by
2001. However, the ratio for graduates in their thirties was 4.74 in 2001 and
4.12 for those over 40. (See Sung and Ashton, Briefing No.4).
3.4. There are significant ‘sectoral’ and ‘occuptional’ differences in
graduate/non-graduate earnings ratios.
The income received by graduates depends on a range of factors explored in
this review. One such factor is the industrial sector graduate employees are
engaged in. Table 5 shows that within the UK, ‘business services’ offer the
highest incomes for men, followed by ‘distribution’, whereas for women
‘transport and communications’ come top of the list, followed by ‘business
services’. This is based on the General Household Survey where the numbers
of graduates is around 600, but it does provide further evidence about
incomes over time (see Lauder, et al., Briefing No.2). The evidence here
suggests that women not only receive less than men in every industrial sector,
but that during the 1990s, female incomes fell in a number of key sectors such
as ‘business services’, ‘transport and communications’ and ‘distribution’.
14Table 5: Net weekly earnings of graduates aged 26-35 (full-time
workers) by industrial sector [prices/year]
1983-84 1991-92 2001
Industry
£ £ £
Men Primary, manufacturing, construction 266 364 392
Distribution 236 320 414
Transport and communications 337 454 381
Business services 290 376 516
Other services 257 318 352
All Industries 267 348 417
Primary, manufacturing, construction 219 275 323
Distribution 207 352 275
Transport and communications 119 428 366
Women
Business services 203 356 346
Other services 218 289 303
All Industries 216 306 312
Source: General Household Survey, Briefing No.2.
Further evidence on these issues can be gleaned from the Labour Force
Survey (See Sung and Ashton, Briefing No. 4). This evidence is based on the
workforce over the age of 21 and compares 1993 and 2001. It is also based
on the difference between graduate and non-graduate median gross incomes.
This is presented as a ratio: a ratio of 1.79 means that graduate pay is 79 per
cent more than that of non-graduates.
Table 6 shows a small decline in the graduate premium consistent with our
earlier findings. Again, it also highlights the complexity of the issues and the
dangers associated with headline figures. The decline in the graduate
premium is explained by the decline, in the differential for women, as male
graduates experienced a minor increase in the differential over male non-
graduates within the UK. It also shows that it is those in their thirties who have
witnessed a significant decline, as the ratio for those under 30 and over 40
show little change.
This table also shows considerable variation based on industrial sector and
occupation. The median graduate in distribution, hotels and restaurants, and
in ‘public administration, health and education, earn twice as much as non-
graduates in the same industry, whereas it is around a half for those in
transportation and communications. When we consider differences within
occupational groups, the differentials are lower: managers and administrators
earned 50 per cent more in 2001, although these figures also show that those
15in ‘professional’ occupations and ‘associate professional and technical’
occupations where 10 and 14 per cent, respectively. Finally, what Table 6
also reveals is a change in the ratio between 1993 and 2001, where the
minuses indicate a decline in the graduate premium.
Sung and Ashton (Briefing No. 4) extend their analysis to consider sectoral
and occupational differences within Wales. However, when the data are
broken down in this way, the small number of cases inevitably raises
questions of validity and reliability. Nevertheless, they found major differences
in the graduate premium for males and females and those entering different
industries and occupations in both Wales and the rest of the UK. In terms of
changes over time, they also observe a general narrowing of the pay
differentials between graduate and non-graduate employees over this period.
However, there are some noticeable exceptions between Wales and the wider
UK sample.
In Wales, the decline in the differentials between graduates and non-
graduates is more pronounced for those at the bottom of the labour market,
especially among females and those in the 30-39 age range. It is the lower
paid graduates among this group that have particularly lost out in relation to
their non-graduate counterparts. Some of this may be a result of female
graduates returning to the labour market at lower income levels after breaks
for childrearing, but some of this change may also reflect a failure to find
‘traditional’ graduate employment.
16Table 6: Median weekly gross pay between degree holders and
those without in the UK (21 years old or older) 1993 and
2001
Ratio Ratio Change in
1993 2001 Ratio
Whole sample 1.92 1.79 -0.13
Gender
Male 1.55 1.65 0.10
Female 2.31 2.10 -0.20
Age
Less than 30 yrs old 1.44 1.43 -0.01
30 to 39 yrs old 1.81 1.71 -0.10
40 or older 2.08 2.10 0.02
Industry sector
Agriculture and fishing 2.23 1.96 -0.27
Energy and water 1.38 1.85 0.47
Manufacturing 1.71 1.67 -0.04
Construction 1.78 1.63 -0.15
Distri., hotels and restaurants 2.30 2.01 -0.30
Transport and communication 1.82 1.55 -0.27
Banking, finance and insurance 1.82 1.85 0.02
Pub. Admin., health and education 1.95 2.00 0.05
Other services 2.09 1.83 -0.27
Occupation
Manager and administration 1.57 1.50 -0.07
Professional occupations 1.20 1.10 -0.10
Asso. prof and tech occupations 1.24 1.14 -0.09
Clerical, secretarial occupations 1.18 1.13 -0.04
Craft and related occupations 1.80 1.51 -0.28
Personal, protective occupations 0.68 1.27 0.59
Sales occupations 1.92 1.47 -0.45
Plant and machine operatives 1.04 1.36 0.33
Other occupations 0.98 0.89 -0.09
N 7,832 15,532
Pay = gross weekly pay; * figures have been subject to rounding performed by Excel.
The interpretation of the ratio: 1.92 means that graduates pay is 1.92 times more that that of non-
graduates' pay.
Change in ratio: -0.13 means that the differential between the two groups has
decreased by 13% during the intervening period.
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