Graduate and Non-Graduate wages narrow in difference

Sourced from HR Review

University graduates continue to enjoy higher earnings than their non-graduate peers, but there are signs the gap may soon shrink, according to the Institute for Fiscal Studies (IFS).

The IFS publishes its results as hundreds of thousands of teenagers received their A-level results on Thursday.

Despite concern that a dramatic increase in the number of young people going to university has led to a decline in graduate wages, the IFS says the graduate wage premium has remained the same for two decades. It says, however, that further increases in graduate numbers could start to erode the premium.

The increasing cost of going to university was flagged up again on Wednesday when it emerged that Exeter University plans to raise tuition fees to £9,250 for existing students, rather than just new students. Some universities have chosen to apply the fee increase only to new students beginning their studies in 2017.

The government has long argued that the cost of going to university is more than justified by higher graduate earnings, but recent studies have suggested the value of a degree has declined because the supply of graduates has outstripped demand.

According to the IFS, median wages for both graduates and non-graduates fell by 15 percent between 2008 and 2015, but the wage difference between graduates and school-leavers has stayed at about 35 percent for the past two decades.

The main reason for the continuing graduate wage premium, the IFS said, was that firms had created more graduate jobs by hiring more managers and switching to less hierarchical structures.

“This process cannot go on forever,” it said. “There are now signs that it might be reaching a natural end, with some small falls in the wages of graduates in the private sector relative to school leavers in the most recent years. Further increases in the number of graduates could start to erode the graduate wage premium in the future.”

The IFS researchers said they were puzzled that the rapid expansion in higher education numbers in recent years had not caused the 20 percent drop in the graduate wage premium their models predicted. Instead, they found that the labour market had changed to increase the proportion of staff working in management, as well as allowing workers more autonomy overall.

“While we do not claim that our empirical results for the organisational change explanation are definitive, we believe that they do provide a coherent explanation for the remarkable stability of the education wage differential from the early 1990s until the mid-2000s in the UK that occurred despite unprecedented increases in the share of entry workers with degree level education over the same period.

“This points to the UK responding to the substantial increase in university education through an adjustment in the organisational structure of work”

The numbers of school leavers is likely to remain flat for a further four years, but university remains an increasingly popular option, with universities making strenuous efforts to recruit among the static pool of potential students.

As a result, the next few years are likely to be a “buyer’s market” for those going to university, with universities making more generous offers in terms of grades required.

The rise in the number of university students from disadvantaged areas has continued despite the increase in tuition fees. A student on a three-year undergraduate course who takes out a full maintenance loan will graduate with more than £50,000 of debt.

Students with vocational qualifications still struggle to get into the leading universities, though the SMF found some notable exceptions. King’s College London nearly quadrupled the number of young people with BTecs it took in between 2008 and 2015, so that students with BTecs now make up more than seven percent of its intake.

The SMF also found that graduates with a BTec and a degree have an hourly earnings premium of 20 percent compared with those with only a BTec as their highest qualification.

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