Graduate earnings premium suffers ‘precipitous fall’

The findings of a study by researchers at Hesa and the University of Warwick suggest a degree does not deliver the boost in earnings it once did

New analysis suggests that the so-called ‘graduate premium’ is starting to wear off, as a rise in first-class honours and a growing proportion of graduates in the workforce has created diminishing financial returns for degree-holders.

Researchers at the Higher Education Statistics Agency and the University of Warwick have scrutinised the earnings of people born between the 1970s and the early 1990s, finding that the graduate premium amounts to no more than 3% for some groups.

In 1992, graduates accounted for 17% of the population; by 2013, that share had risen to 38%. As the proportion of graduates rose, so too did the numbers gaining first-class undergraduate degrees. In 1996/7, 7.7% of undergraduates received a 1st, 44.5% a 2:1 and 47.9% a 2:2. By 2017/18, more than a quarter of graduates (27.8%) received a 1st and less than a quarter received a 2:2 (23.7%).

Researchers say that these two trends correlate with a change in the average graduate premium. They estimate graduates born in 1970 earned around 17% more per annum than non-graduates at the age of 26, but by 1990 this premium had dropped to 10%. Among those that received a 2:2, the drop was steepest of all, falling 11 percentage points. It means that graduates with a 2:2 born in 1990 had an estimated graduate premium of just 3% by 26.

The researchers also investigated changes within the millennial generation, popularly defined as those born between 1980 and the mid-1990s.

The salary premium for graduates born between 1988 and 1993 was 10% lower at 26 relative to those born between 1980 and 1988. Researchers estimate that, by 26, younger millennials earned on average 13% more than non-graduates, down from 23% for older millennials.

The report builds on an earlier, less-conclusive study by the same authors.

“We suggest that this precipitous fall is consistent with a ‘double scarring’ effect associated with the combination of increased higher education participation and a rise in the proportion of graduates awarded an upper honours degree over the span of the two cohorts,” the researchers concluded.

“With disadvantaged students more likely to qualify with a lower second class award or below, such a low premium may reduce the extent to which higher education can help improve the socioeconomic circumstances in adulthood for those who enter higher education from deprived households,” the report warned.

“Prospective disadvantaged students may also no longer perceive university as a guaranteed route to improving their labour market prospects.”

The study comes as the Higher Education Policy Institute (Hepi) publishes a report that warns graduates with student debt – particularly those that attended after fees rose to £9,000 – reported experiencing “financial and psychological burden” as a result. The first intake after the 2012 fee changes were young people born in 1994, just outside the parameters of the Hesa earnings study. But even those that went to universities under the 2006 regime – when fees in England were capped at £3,000 – reported that student debt affects them negatively.

“Both cohorts question whether the higher fees represent value for money and whether their degree was worth getting into debt for, as it might not always deliver on the hope of a high-paid graduate job,” the authors of the Hepi report warned.


Read more: London and the south-east has highest concentration of well-paid graduates, finds OfS

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