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YOU ARE IN » Home page > News and information main menu > Graduate Market Trends > The value of a degree (Spring 08)

The value of a degree (Spring 08)

• Summary
• Article
• References

Summary

Dr Anna Vignoles, a reader in the economics of education at the Institute of Education, looks at recent debate about the ‘oversupply’ of graduates and wage premium issues.

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Article

The numbers of young people entering higher education has increased dramatically in the UK in recent years and around 40% now go on to university. Whilst expanding educational opportunity is beneficial for many reasons, some commentators are increasingly concerned that we could soon have an ‘oversupply problem’. In other words we could have too many people obtaining degrees, only to find that they either cannot find a graduate job or that they earn substantially less than they anticipated. In the worst case scenario, it is possible that individuals with degrees may earn no more than those who stop their education at A-level.

In fact, there is a lot of global evidence that employers increasingly demand more skilled workers. Certainly in the UK there has been a substantial increase in the number of professional and/or graduate-level jobs. A recent government review of skills (Leitch, 2006) found that the proportion of the workforce in professional and managerial jobs has increased substantially from around one in five in 1984 to around 27% in 2004, with further increases projected [1]. This trend is reassuring in that it suggests that the labour market has the potential to accommodate increasing numbers of graduates.

So generally economists believe that in the future there will continue to be high and potentially growing demand for skilled people. This is reassuring for those considering whether or not to go to university. However, a study by Walker and Zhu (2005) is less optimistic [2]. This work suggests that very recent graduates entering the labour market in the last few years have seen a slight fall in their relative earnings. It is still the case that a degree is valuable, with an average graduate earning just under 30% more than someone who stopped at A-level (level 3). What the research shows though is that this gap in pay between graduates and less skilled workers is somewhat less for recent graduates. We may be reaching a turning point where the value of a degree is starting to fall. Such worries are reinforced by other evidence which suggests that around one third of graduates fail to get a graduate-level job (McIntosh, 2005; Chevalier and Lindley, 2007). [3] [4]

Not all graduates, however, face difficulties getting good pay and a graduate-level job. Some degree subjects attract much higher wage premiums than others. Table 1a and Table 1 b show the top four best paid top degree subjects, compared to the bottom four [5], for men and women respectively. In each case, the wage premium shown is relative to the earnings of an arts graduate. There is a huge variation in the earnings of graduates with different degree subjects. For instance, men with accountancy degrees earn in excess of 40% more than the average arts graduate. Employers seem to value technical and mathematically based degrees particularly highly. Highly educated but non-numerate graduates may fare badly relative to their more numerate peers. In fact we find this to be true at all levels of education: individuals with good numeracy and mathematics skills are more highly paid (De Coulon et al. 2006; Dearden et al. 2002; Dolton and Vignoles, 2002). [6] [7] [8]

In summary, in the UK there has been a particularly rapid expansion in the number of graduates and we are seeing recent graduates experiencing a slight downturn in their relative earnings as compared to previous generations. Yet the average value of a degree remains high. What will matter in the future is the type of degree a person acquires and some subjects, like accountancy and engineering, will be more valuable than others.

References

1. Leitch Review of Skills (2006), Prosperity for all in the global economy – world class skills, Final Report, December, HMSO.

2. Walker, I. and Y. Zhu (2005) The college wage premium, over education and the expansion of higher education in the UK, IZA Discussion Paper No.1627, Bonn, Germany.

3. McIntosh, S. (2005) Evidence on the Balance of Supply and Demand for Qualified Workers, in S.Machin and A. Vignoles (Eds) What’s the Good of Education?: The Economics of Education in the UK, Princeton University Press.

4. Chevalier, A. and Lindley, J. (2007) ‘Overeducation and the Skills of UK Graduates’, Centre for the Economics of Education Discussion Paper No. 79, http://cee.lse.ac.uk/cee%20dps/ceedp79.pdf.

5. Sloane P J and O’Leary N C (2004) The return to a university education in Great Britain, IZA Discussion Paper No 1199, Bonn, Germany.

6. De Coulon, A., Marcenaro-Gutierrez and Vignoles, A. (2007) ‘The Value of Basic Skills in the British Labour Market’, Centre for the Economics of Education Discussion Paper, http://cee.lse.ac.uk/cee%20dps/ceedp77.pdf.

7. Dearden, L, S. McIntosh, M. Myck and A. Vignoles (2002) 'The Returns to Academic, Vocational and Basic Skills in Britain', Bulletin of Economic Research, Vol 54, no. 3, pp. 249-274.

8. Dolton, P. and A. Vignoles (2002) 'The Return to Post-Compulsory School Mathematics Study', Economica, Vol. 69, No. 273, pp.113-142.

Content last updated: May 08