Estimating the human capital of graduates

This project used anonymised tax data and student loan records for 260,000 students to look at the link between earnings and students’ background, degree subject and university attended up to ten years after graduation.

The study found that those from richer backgrounds (defined as being from approximately the top 20% of households of those applying to higher education in terms of family income) did better in the labour market than the other 80% of students.

This is the first time a ‘big data’ approach has been used to look at how graduate earnings vary by institution of study, degree subject and parental income. The data set includes cohorts of graduates who started university in the period 1998’2011 and whose earnings (or lack of earnings) are then observed over a number of tax years.

Main findings

• The average gap in earnings between students from higher- and lower-income backgrounds is £8,000 a year for men and £5,300 a year for women, ten years after graduation in 2012/13.
• Even after taking account of subject studied and the characteristics of the institution of study, the average student from a higher-income background earned about 10% more than the average student from other backgrounds. The gap is bigger at the top of the distribution £ the 10% highest-earning male graduates from richer backgrounds earned about 20% more than the 10% highest earners from relatively poorer backgrounds even after taking account of subject and the characteristics of the university attended. The equivalent premium for the 10% highest-earning female graduates from richer backgrounds was 14%.
• Non-graduates are twice as likely to have no earnings as are graduates ten years on (30% against 15% for the cohort who enrolled in higher education in 1999 and observed in 2011/12).
• Partly as a result of this, half of non-graduate women had earnings below £8,000 a year at around age 30. Only a quarter of female graduates were earning less than this. Half were earning more than £21,000 a year.
• Among those with significant earnings (which we define as above £8,000 a year), median earnings for male graduates ten years after graduation were £30,000. For non-graduates of the same age, median earnings were £22,000.
• The equivalent figures for women with significant earnings were £27,000 and £18,000.
• More than 10% of male graduates from LSE, Oxford and Cambridge were earning in excess of £100,000 a year ten years after graduation in 2012/13, with LSE graduates earning the most. LSE was the only institution with more than 10% of its female graduates earning in excess of £100,000 a year ten years on.
• A large number of institutions (36 for men and 10 for women) had 10% of their graduates earning more than £60,000 a year ten years on.
• At the other end of the spectrum, there were some institutions (23 for men and 9 for women) where the median graduate earnings were less than those of the median non-graduate ten years on. It is important to put this in some context though. Given regional differences in average wages, some very locally focused institutions may struggle to produce graduates whose wages outpace England-wide earnings, which include those living in London where full-time earnings for males are around 50% higher than in some other regions, such as Northern Ireland.