Tuesday, 7 December 2010

Graduate Premium

I found myself having to explain this again in the office yesterday. Forgive my crude graph. The relationship was established long ago, when fewer than 10% of 18 year olds went into higher education but astonishingly still prevails - the estimated drop in the premium from much larger numbers emerging with degrees has not (yet) happened. The graph illustrates the typical earnings over a lifetime of a graduate and skilled manual worker. At first the trade enjoys a rapid rise in income in their 20s but somewhere around the age of 30 earnings equalise and continue to diverge from then on. Trade skills and therefore earnings decline as age slows output - a door fitter who could hang eight doors a day at 25 will be lucky if he can hang three a day at 55. 

The Graduate Premium - the area Y less the area X - is the gross excess that a graduate earns over a lifetime. At Net Present Value, it's estimated at somewhere between £400k and £1m. And this is the reason why successive governments all want to make students pay more for their qualifications. They reckon that £40k of debt is a cheap price to pay for £400k of benefits. Prospective students, of course, will not see it that way. 


My question is why the greater supply of graduates in the economy hasn't apparently competed away the scale of the Premium by anything significant - as a recent government survey suggests;

There is, however, evidence that the graduate premium may now be starting to decline. According to the Department for Education and Skills, in 2005 and in England alone, the difference in earnings between graduates and those educated to A-level or equivalent remained high at 45%, but was slightly lower than the position in 2001 when the margin was 51%. The above finding has to be interpreted in a wider context, however. First of all, graduates are continuing to earn substantially more than non-degree holders and they are also less likely to be unemployed. Moreover, research from the Organisation for Economic Co-operation and Development (OECD) has shown that the graduate earnings premium in the UK is high by international standards, and is lower than those in only five other countries: the Czech Republic, Hungary, Poland, Switzerland and the US.
So equitable recovery of tax costs or grossly unfair imposition? You decide.  

7 comments:

Anonymous said...

Well first we have to start with Labour's promise. Education, education, education. Easily available education for all ages and abilities - and easily available means affordable in this context. Then we have to uncover what a flood of "degrees" and "graduates" means in the education / employment transition. In this context it means devaluation. The degree is devalued by the Uni or College (aren't they all Unis these days, which capably demonstrates the point) who are keen to get bums on seats, rather than high quality, inately intelligent, A-level students, who will graduate with worthwhile degrees.

So, we then have devalued degrees, held by underperforming students, dished out by a tertiary education system which holds a much lower value, in a tough employment world. What a heady mix!

All this is set to get worse because when tuition fees get to £9k (lets not start on broken election pledges) we will then have underperforming students who are broke and will never get the job that pays the gap anyway, or they just won't attend Uni or college to start with, because it just isn't worth the risk. Note the word risk. Who is going to take the risk on a £30-40k debt for a job in Sainsbury's stacking shelves. Because that where this nation is heading with tertiary education. Its all one great big spoon-fed lie; and these nasty chickens are all flying home to roost at a college near you soon.

As for me? Well I got one O level in a secondary modern, at a time when my school didn't even do O levels - I was an "experiment". Interestingly, I now earn about 50% more than your average MD and no one (after about 1 year after my apprenticeship) has ever asked me for my qualifications. Just as well - "coz I ain't got any"

Coney Island

Anonymous said...

As you are well aware, R., averages are made up of extremes. A lot of graduates, even those from good universities, go into so-called "socially beneficial" jobs which pay not much more than the national average. On the other hand, some will go into extraordinarily well-paid jobs in banking and the financial sector.

At the other end of the spectrum, a non-graduate might earn minimum wage stocking shelves or he might earn £50k a year as a bin man or he might earn £80k a year as a plumber.

It is simply not feasible to lump all graduates and all non-graduates together and then try to extrapolate meaningful data. Let us, for example, not forget that nurses count as graduates and yet few amongst us would consider them to be rolling in the graduate premium.

The simple problem with British higher education is too many fake universities taking too many fake students. It is not Oxbridge and the Russell Group that is sucking up all the higher education cash - it is the so-called new universities and the 1960s monstrosities like Lancaster. They have become a mechanism for successive governments to hide the genuine unemployment figures by sticking morons into three year degrees in aromatherapy and media studies. Competent students studying rigorous subjects are now charged fees purely so that Labour-voting twats can do pretend degrees in pretend subjects at pretend institutions. Remove these places and acknowledge that putting even 20% of 18 years olds in higher education is probably too much and you will solve the problem and obviate the need for fees.

As it is, with fees, entry is now determined on ability to pay which means that courses must be dumbed down so that the dimmest rich child in the class can still pass. This is why you now have to take a Master's degree in order to do work that, ten years ago, was considered integral to an undergraduate degree.

We have chosen to go down the American road with all that that implies - credit checks for entry to university, degrees that are less rigorous than Continental secondary school teaching and a situation where every singles person you meet has a college degree but 95% of them can barely spell their own names.

Too many people, as I do have to put you and your readers in this category, R., are simply overjoyed at the idea of getting one over on the students. You're not thinking about the implications or the underlying issues. You're too focused on the fantasy that you're sticking it to those scrounging lazy students (the same ones who'll be providing your medical care in a few years and who'll be working alongside you). And a good number of people who're orgasming over the prospect of pricing students out of education are people who were simply not bright enough to get into university twenty or thirty years ago and who are now keen to stick the boot in - which is to say, they are jealous and spiteful and nothing more.

Finally I make this point: the amount of money spent on education, the health service and defence combined is less than the government's annual spending on pensions. Why are you people so keen to trim a pittance off the education budget instead of going after the tens upon tens of billions of pounds being thrown away on providing for feckless public sector workers with gold-plated pensions and benefit-dependent OAPs? Perhaps, having already received your free education, you're keen to pull up the drawbridge but not so keen on cuts that may hit you in the pocket.

Budgie said...

There are some things I despair about - and this is one of them.

People who earn more, pay more tax, even if it is at a flat rate. But with three tiers (20%, 40%, 50%) plus NICs (11% employee, 12.8% employer, plus lots of threshold complications), plus the 9% SL repayement over £15k, lots and lots of direct tax is taken off. Higher earners pay more because they earn more, and they pay at a higher rate in addition.

So higher earning graduates already paid for their education in the past.

All student fees do is 'pull the money forward' and increase it. That is students used to have their degree paid for by their fore-runners (ie according to Raedwald's graph the graduates in work and earning a lot). Now, with fees, the system is moving to one where students become directly indebted and then pay it off. This is in addition to continuing to be taxed as heavily or even more heavily than their forebears.

So in the vast majority of cases tuition fees are just another way of squeezing more tax in disguise, and is nothing to do with fairness. I would support fees if and only if direct taxes were lowered.

Demetrius said...

One reason why this premium may have continued is the high rate of leaving amongst the 50+ range, either being dumped or by early retirement. The way it has been is that as the younger ones come forward they are still cheaper than the older ones for various reasons. Also, there has been the disproportionate effect of finance sector expansion in the immediate past, another distortion that cannot last.

Anonymous said...

How about the thousands of "graduates" getting useless degrees in useless subjects that go on to minimum wage or dead end ?

Anonymous said...

I don't have figures to back this up but my guess is that the discrepancy between lifetime graduate and non-graduate income is persistent and relatively large in the UK because there is downward pressure on non-graduate income due to immigration. Many people in non-English-speaking countries can make shift to communicate well enough in English to come here for lower-skilled jobs but the standard of English required for most graduate jobs is very high indeed and that acts as a barrier to entry.

Few graduate jobs need more than a year of classroom tuition, law being a good example, where only a year of relevant classroom training is required. In practice many graduates are not trained for their job by universities anyway; hardly anybody in the City for example learned their trade at university, they learned on the job, although a few relevant courses do now exist.

Anonymous said...

bring back the 'trade' of motherhood and get a properly reared nation