Do graduates earn £100,000 more than non-graduates?
The claim
“Graduates on average have better employment prospects and can expect to earn at least £100,000, net of tax, more than non-graduates across their working lives.”
Universities and science minister David Willetts, commenting on The Push National Debt Survey, 13 August 2010
The background
Students will owe nearly £25,000 when they graduate, a new survey by Push reported. But don’t worry, says Universities Minister David Willetts, it’s a good investment as you’ll earn £100,000 more for your £25,000 debt than those with only A-levels.
It’s a hot topic when the government is considering replacing tuition fees with a graduate tax – in the autumn, former head of BP Lord Browne is due to publish his Independent Review of Higher Education and Student Finance where he will set out all the options. So far, a graduate tax seems to be the preferred option for the coalition – particularly when the Lib Dems were so adamantly against fees. But expect to hear more arguments about the benefits of university education as the debate goes on. So, FactCheck thought we would see if graduates really do benefit that much?
The analysis
The first mention of the £100,000 figure we can find is from 2002. Previously in 2001 the government had calculated the so-called graduate premium at £400,000 (gross) over a working lifetime. This figure was rejected however, as the calculations had compared the earnings of graduates with the population as a whole including graduates, pushing the average up.
The government decided a better way to make an estimate would be to compare the earnings of graduates (of bachelor’s degrees or equivalent) with those of people who stopped their education at A-level (meaning those gaining two or more A-levels). Analysis of these figures led to an estimate of the graduate premium at £120,000 (gross), which is the basis for Willett’s line that graduates can earn “comfortably more than” £100,000 net of tax but not including National Insurance contributions.
The calculation is eight years old, so why is it still being used when fees and the number of graduates in the jobs market have changed so much? The Department for Business Innovation and Skills told FactCheck that a pre-recession report by PricewaterhouseCoopers (PwC) for Universities UK confirmed the validity of the current estimate. In fact, the PwC report suggested the graduate premium may be even higher at £160,000 gross. Remember that the figure is an average so some degrees such as architecture and medicine are likely to lead to higher salaried jobs than others. It’s also worth mentioning that another benefit of a degree education according to the PwC report is that holders are more likely to be in continuous employment than those without, boosting their earnings overall.
There is a flaw in this calculation however: it is based on historical data from the Labour Force Survey. The PwC report’s co-author John Lakin told FactCheck he doesn’t see any other way of measuring it. This means the sums don’t take into account potential changes in the market or the economy that might affect earning potential, for example the PwC report is from 2007 and is based on data up to around 2005 so it doesn’t cover the period since the recession. The data is also based only on earnings, without taking into account deductions such as National Insurance contributions or the impact of top-up fees introduced in 2006.
So can we accurately value the impact of a degree on earnings? Kate Purcell from the Institute for Employment Research at Warwick University is doubtful: ”Nobody really knows what the graduate premiums of the current generations of graduating students will be because extrapolation from previous patterns of graduate earnings can only be essentially ‘guesstimates’.
“The ratios of graduates/non-graduates in the labour market have changed so much, the range of skills and knowledge they have acquired in HE cover a far broader range than before, the skills required now and in the future are based on very different industrial, occupational and technical contexts and there is a huge- and growing – dispersion of graduate earnings and consequently, the extent of premiums.”
The verdict
So, all the estimates suggest that Willetts is right – based on the data available a graduate does on average earn £100,000 more over their working lifetime than a non-graduate. But that is a gross figure – it doesn’t account for the cost of the degree or student debts, for example, that the Push survey sets at £25,000.
And will it still hold true for future graduates? Well, that remains to be seen. But we are sure it will be a source of discussion when Lord Browne’s recommendations are released in the autumn.
There are 18 comments on this post
So, if they earn £100K more than non-graduates, the extra income tax, National Insurance, and VAT collected from them more than pays for their education.
Which is why the “graduate tax” should be so strongly opposed. Why should they pay twice for their education?
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The graduate earnings premium, which is put forward as the rationale for tuition fees, is overstated, diminishing, and virtually non-existent for many degrees and careers. The average annual long-term growth productivity in the UK, which determines what we can pay ourselves, has since 1945 remained stubbornly at around 2½%. Consequently, with 30% of the working age population already having degrees, it will be mathematically impossible for the majority of graduates to earn the starting salaries and annual increments of the past, unless non-graduates take severe cuts in their real incomes.
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The original guestimates (2001 and 2002)can only use hard data on actual lifetime earnings for people who graduated in the 1960′s and 1970′s. Crudely, these were about 10% of their age group (notionally the most intellectually gifted 10%), and were entering a career track that typically offered 40 years’ continuous employment with ascending pay scales and grade structures.
Current graduates represent 30-40% of the age group, and face an indefinite period “stuck in the revolving door” of unpaid internships, temporary “Macjobs” and short contracts. It’s quite difficult to see how historical data could give any useful forecast of the economic value of a degree obtained this year. Basically these numbers are just part of a sales pitch, to justify recovering cost by, say, a graduate tax.
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Well said. Personally makes me really mad. They should a) take out doctors and accountants, b) take out oxbridge candidates and then report on the gross salary of the “average” degree-holder (talking of which, I wonder how they’ve accounted for post-grads…). It doesn’t however stop there. They then need to take out the loss of earnings over the period of study, the cost of the loans, and lets NOT forget, the interest on said loan over its lifetime (which of course is dependent on salary as to how long it would take to pay back). I would be really, really surprised, neigh flabbergasted and in need of a chair and a stiff drink, if the earnings potential was anywhere near £100,000.
Its not so much that I have an issue with the fees, but I do have a problem, that I’ve heard this number being banded round several times and I sincerely believe its warped! Though the analysis may be lacking Factcheck, at least you’ve bought it to folks attention: and its always good to have a talking point.
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Your analysis displays a woeful understanding of statistics. You have not given any consideration to the spread or variation in remuneration rates instead rather lazily relying on that dirty statistic ‘average.’ This tell you nothing about where most salaries lie and we know clearly that society has become more unequal so it would be far more appropriate to look at modal (most common) earnings. It is extremely unlikely that the graduate of today will receive anything like the graduate premium enjoyed over the last 40 years. You acknowledge this but your meter still swings into the green!
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JJ, that is rather harsh statement, besides, median earnings are more useful than modal ones. This is why, as an example, the Office for National Statistics uses the median in its discussions of earnings. A degree of spread is often very illuminating I grant you that but enough of your ‘woeful’ claims.
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I think some graduates earn more than non – graduates but the majority do not earn more than graduates.
Some graduates who do teaching, medecine, veterinary, dentiststry, health related professions have to go to university, most of those people earn more than non – graduates.
I think 10% of graduates get access to graduate training schemes, they will earn substantially more than non – graduates.
The other people who do graduates and work in small medium sized companies may earn more than earn non – graduates.
The rest will work in non – graduate jobs.
If a person lives outside London it is much harder to get a graduate job.
It depends on a person’s socio – economic background, race, religion and any disabilities.
Thete are too many graduates chasing too few jobs.
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Clearly it is quite possible for the “average” Graduate to earn more than non-graduates,while the medium Graduate earns the same or less.
Isn’t there interest on student debt ? Don’t a percenatge of people earn vast sums to which the fact they have a degree is incidental, rather than the cause. Perhaps a study of graduate earning split between people from private and public schools would be useful.
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Even if we accept £100,000 gross as being correct, the net benefit sums are getting trickier. Over a 40 year career, it’s barely £2,500 a year. After tax and NI and loan repayment and interest, that doesn’t represent a spectacular rate of return for the student or even for the nation. Add in the fact that graduates have small families later in life, and so do not benefit from family credits to the same extent and the sums become more tenuous still.
Basically our problem is that by dumbing down our education system and encouraging people to spend more time acquiring the same amount of knowledge than it took earlier generations, we are keeping the young from threatening the dole queues for an extra couple of years while adding to the costs of educational buildings and teachers to keep them here. Such a decline in productivity of education is a poor bargain for pupils and the country. Politicians (both Labour and Tory) are too scared to admit that they have been handing out prizes under a false prospectus.
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Also, is that £100k adjusted for inflation? Is it worth £100k at the beginning of a career (when the £25k debt is incurred) or at the end, or merely the arithmetic sum?
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Check the ‘Independant’ Graduate Earnings table for 2010. Across just about all disciplines the average graduate earnings in year 1 is around £5000 p.a higher than the same age group who qualified and entered the workforce with A-Levels (and probably much more for those with only GCSE’s). As a father of 2 university students (one medicine, one science) – and soon to be 3 (probably medicine again). I see merit in the new scheme. As my eldest daughter stated to me the other day – it does NOT disadvantage those from poor backgrounds as by the time they start paying back (over £21.5k) they are NO LONGER from a poor background. My dad was a self-employed (and often unemployed) joiner on building sites. I went to Uni in my 30′s to qualify as a teacher. I have seen it all from every angle.
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So why give them free years in tuition? I’m not from a poor poor background, but certainly not a well off background either. £9000 pounds a year is still a lot of money for me, should I also get a discount or free years?
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This doesn’t take into account loss of potential earnings whilst at Uni. I was on £15000 a year when i left for univeristy. Assuming that I never got a pay rise i would have earned £45000 in the years I was at University. Add that to the £20000 Debt I have got its actually only £35000 better off. Like I said, assuming I never got a pay rise.
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On average graduates will be brighter and more academically motivated than non-graduates. Is it surprising they earn more irrespective of degree. Graduates may earn more than non-graduates but some of it is because on average they are more employable as individuals. The best people in my 6th form went to university but I bet they would have earned a premium of more than £2500 a year anyway.
Comparing like with like (same inate capability or IQ) is fundamental statistics!
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[...] Much-quoted data from the pre-fee charging era suggests an income premium over a working life for degree holders of £100,000. But that data didn’t factor in debts or fees, even before the recent massive hike. [...]
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[...] statistics they were bandying. So it was that I went to a nearby computer and came up with this fact check from Channel 4, which concludes thus: So, all the estimates suggest that Willetts is right – based on the data [...]
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[...] Why then should Pete the plumber or Sheila the secretary, whom did not go to University themselves, have to pay for an essentially elitist education? Not only did Sheila and Pete not have the privilege of taking 3yrs off, getting lashed on student union subsidised beer and dossing on a 12 hrs a week timetable; they also don’t have the same chances of earning a higher salary. Statistics show that throughout their working life, those with a University education will get to earn huge amounts more than those that did not attend University. Median wages per hour are double versus the non graduates, and lifetime earnings are potentially some £160,000 more. [...]
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The 160,000 does not reflect the benefit to the individual as they compare graduates (typically 3+ A Levels) with non-graduates with 2+ A levels – usually 2. The ones at university are on average far more academically able and can be expectd to earn more anyway. The Universities UK report has proper comparable results for non A-Level student (graduates vs non graduates) and state £9000 benefit not £160,000 for them. Reference “Research Report:The economic benefits of a degree” Universities UK section 6.4
So what do you think of the statics now?
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