Graduate returns, degree class premia and higher education expansion in the UK

Abstract

We investigate the extent to which graduate returns vary according to the class of degree achieved by UK university students and examine changes over time in estimated degree class premia. Using a variety of complementary datasets for individuals born in Britain around 1970 and aged between 30 and 40, we estimate an hourly wage premium for a 'good' (relative to a 'lower') class of degree of 7% to 9%, implying a wide spread around the average graduate premium. We also estimate the premium for a good relative to a lower degree for different cohorts (those born between the mid-1960s and early-1980s) and find evidence that the premium for a good degree has risen over time as the proportions of cohorts participating in higher education have increased.Keywords: Graduate returns, higher education participation, ability composition JEL codes: J31; J24; I23; D82 This paper was produced as part of the Centre's Education and Skills Programme. The Centre for Economic Performance is financed by the Economic and Social Research Council.We are grateful to Abigail McKnight for help with matching USR/FDS occupational codes to earnings data and to Massimiliano Bratti for research collaboration using BCS70 data. We also thank Jo Blanden and Jonathan Cribb for guidance on non-cognitive personality measures in BCS70 and Wenchao Jin for LFS measures of graduate unemployment. We acknowledge helpful comments on earlier versions from anonymous referees and from

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“…If there was no loosening in the citeria of degree classifications, which is a big if, then this could be interpreted as signs of a positive shift in the quality of graduates over time. But this shift would be small in magnitude given that the wage premium of a "good" degree is estimated to be below 10% [Naylor et al, 2015]. In short, observed categorizations of BAs by whether they have postgraduate degrees and by undergraduate degree class cannot explain the puzzle.…”

“…Meanwhile, the proportion of university graduates who have a "good" degree increased from 38% in 1985 to 47% in 1993. [Naylor et al, 2015] Here "good" refers to first-class and upper-second-class degrees as opposed to lower-second and third-class degrees under the British undergraduate degree classification. If there was no loosening in the citeria of degree classifications, which is a big if, then this could be interpreted as signs of a positive shift in the quality of graduates over time.…”

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“…First, the paper compares the distribution of earnings in the administrative data with the LFS and highlights the potential limitations of both data sets, which is an issue of increasing relevance as administrative data sources start to become more readily available for policy makers. Second, it provides evidence on the level and variation of UK graduate earnings by using this new high quality data source (Naylor et al ., ; Walker and Zhu, ). Third, it highlights the rich potential of this data set for understanding inequality in earnings, adding to the large body of work on this issue (Cunha and Heckman () have provided a comprehensive summary).…”

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