The significantly higher earnings that graduates in England can expect over those who didn’t study at university, the ‘graduate premium’, has been revealed in detail by a large new study – the first of its kind, funded by the Nuffield Foundation.
Researchers at the Institute for Fiscal Studies (IFS), Harvard University and the University of Cambridge found that median earnings of English women around 10 years after graduation were just over three times those of non-graduates. Median earnings of male graduates were around twice those of men without a degree. This advantage for graduates was maintained through the recent recession, although all groups saw significant falls in their earnings during this period.
The study shows that the recession had a large impact on the earnings of people in their twenties and early thirties. This is particularly true for women, who experienced much lower earnings than previous cohorts. However, the research also indicates that graduates fared better than non-graduates – they saw proportionally smaller drops in their earnings – with higher education providing some protection from the economic downturn.
The researchers used anonymised tax data and student loan records for over 260,000 graduates for up to 10 years after graduation. This large database provides a far more accurate picture of earnings than was previously possible, The data include cohorts of graduates who started university in the period 1998-2011 and whose earnings (or lack of earnings) are then observed in the tax year 2011/12, though the results hold for graduates in other tax years.
This is the first time a big data approach has been used to look at graduate earnings. The administrative data gives a much more accurate picture than existing surveys which tend to be based on much smaller samples self-reporting their earnings and are subject to biases.
The researchers, report their results in a new working paper. Other findings include that:
- The administrative data suggests that the annual earnings of the highest earning graduates are greater than appears in other data. For example, 10 years after graduation, 10% of male graduates were earning more than £55,000 per annum, 5% were earning more than £73,000 and 1% were earning more than £148,000. Ten years after graduation, 10% of female graduates were earning more than £43,000 per annum, 5% were earning more than £54,000 and 1% were earning more than £89,000.
- Using this “big data” also suggests there is less gender inequality among graduates than other data sources imply. The study puts the male–female annual earnings gap 10 years after graduation at around 23%, whereas the Labour Force Survey suggests it is around 33%.
- Graduates suffered proportionately less during the recession than non-graduates in terms of their earnings, implying that having a degree provides some protection from bad labour market outcomes.
- Over the recession period females fared proportionately worse than males in terms of annual earnings. For example, female graduates in their late 20s saw their real earnings decline just as, in normal times, they would have expected rapid earnings growth as they gained experience.
Jack Britton, a research economist at the IFS and an author of the working paper, said: “This study shows the value of a degree, in terms of providing protection from low income and shielding graduates from some of the negative impact of the recent recession on their wages. We find this to be particularly true for women.”
Neil Shephard of Harvard University, another author of the paper, said: “This type of big data analysis allows us to track how earnings evolve during a career. This is important in measuring human capital and understanding why this varies between subpopulations of graduates.”
Anna Vignoles of the University of Cambridge and the IFS, and another author of the report, said: “This study illustrates the power of using big data to better understand the graduate labour market and shows that previously we have underestimated the earnings of top graduates.”
2. The research team used administrative data from both the Student Loan Company (SLC) and Her Majesty’s Revenue and Customs (HMRC) to observe how the earnings of students who take out a loan from the SLC change through the years as they mature in the labour market. The team compared the administrative data set with the UK Labour Force Survey and other survey data on graduates.
3. The researchers note that they can only identify graduates who have borrowed money from the Student Loan Company. This is around 85% of English graduates in the period under consideration. There are therefore some graduates for whom there is no data but we have reason to believe that they are likely to be higher earning graduates, on average. As a result, if anything, the administrative data is likely to underestimate graduates’ earnings.
4. The researchers were granted access to records in a secure HMRC data enclave after all identifying material in the data had been anonymised. Team members who use this data have been subject to the same strict confidentiality and data protection requirements as HMRC staff and liable to legal penalties for breaches.
IFS Working Paper – Comparing sample survey measures of English earnings of graduates with administrative data during the Great RecessionIFS-Working-Paper-–-Comparing-sample-survey-measures-of-English-earnings-of-graduates-with-administrative-data-during-the-Great-Recession.pdf1.78MB 23 September 15