Diminishing returns; will a degree put more money in your pocket?

On the week that A level results are announced, some interesting publications have come out questioning the returns to a degree.

This week the Government published data on graduate outcomes from the Longitudinal Educational Outcomes (LEO) data. It’s very exciting as it is the first publication to use this LEO data which promises to shed light on transitions from education to employment. The UK is a bit of leader when it comes to longitudinal studies that span/will span this divide, but the LEO data is unique in that it uses already available data. Government departments such as HMRC are combining their tax data with DfE student record data.

Unfortunately, the data was presented in the sort of dry but necessary way that these releases have to be presented.

I’m interested in the earnings data. The publication notes that ‘There has been little change in the median annualised earnings for each cohort three and five years post graduation’. This is a bit unhelpful as it’s meaningless to note trends in the data before adjusting for inflation. I’ve done this in Chart 1 which includes the indexed and unindexed data (dotted lines).


*Pay indexed to CPI inflation in June 2016 prices.

It makes for painful reading for someone like me who graduated in 2009. Median earnings are £4000 less after three years than for someone who graduated 6 years earlier. There has been an obvious decline in pay for successive cohorts.

So this is an open and shut case right? A degree is not worth it, or at least is worth less than it used to be? Not so fast.

The Institute for Fiscal Studies this week released a note saying that the big increase in student numbers did not reduce relative wages (the ratio between the wages of those that went to university and school leavers). The chart below shows that this stayed the same for successive cohorts.


Source: IFS https://www.ifs.org.uk/publications/8426

If simultaneously the pay of graduates is declining for successive cohorts but the ratio between grad pay and non-grad pay is staying the same, that means everyone’s pay must be declining. The chart below shows a decline in pay for all occupational groups since 2007. I’ve made the top three Standard Occupation Codes (SOC) dashed. When I worked on the Destination of Leavers from Higher Education (DLHE) survey these were the ones considered graduate level jobs.


*ASHE data – Median annual salary of SOC codes 1-9 and All Occupations.

But wait. Just because someone has a degree doesn’t mean they automatically walk into a managerial or professional job. The final chart shows that the proportion of grads in non-grad jobs has increased over the past few years.

Chart 4

*Labour force survey

What are the take aways from this? Although graduates are earning less than they used to and are less often in graduate level jobs, the return to a degree relative to someone who hasn’t been to university has stayed the same. The IFS note that as the number of people with a degree continues to increase the ratio between grad pay and school leaver pay may start to get worse for graduates.



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