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
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