Tuesday, 24 September 2013

Graduate Premium

There's a deal of nonsense written about the graduate premium, generally by those who display an utter misunderstanding of what it means. Such a one is Aditya Chakrabortty writing in the Guardian today; "a man who comes out of university with a BA in history or philosophy will earn an average of only 2.3% a year more than if he'd gone straight into the labour market" he blithers, seemingly unaware that the premium refers not to graduate starting salaries but lifetime earnings. Sigh.

OK. Imagine a time-series graph with income on the left side and age 18 to 80 on the bottom. The graduate line will start low and stay low in the 20s, rising in the 30s and continuing to rise gradually until the 60s when it finds a plateau for a while before falling. A craftsman line - say a carpenter - rises sharply in the 20s into the 30s, starts to plateau in the 30s then starts to fall from the 50s onwards. The areas between the two lines represent the net financial lifetime difference in income - with the graduate showing a substantial excess. 

Any manual or craft trade will have an earnings pattern that mirrors the growth and decline of physical strength - a door fitter who can fit 8 doors a day on piecework in his late 20s will only be able to fit 4 in his 50s, unless it is a craft such as potter or silversmith that doesn't rely on physical stamina. All cerebral occupations will tend to reward experience and continue longer. The 23 year old chippie may wave his fat pay wodge at an equally-aged impecunious student but it won't last. 

The remarkable thing about the graduate premium that has surprised economists is that it was easy to understand in the days when only 5% of us went to Uni, but less easy to understand now; graduates still earn a lifetime premium (though lower than before), though 50% of new job market entrants have been to Uni. Explanations?

9 comments:

Nick Drew said...

rise of the service sector ?

(decline of the silversmiths ?)

or is it that the 'graduate' figures (as in "graduates still earn a lifetime premium") are averages of a set that includes, as well as some pretty impecunious and non-academic lower-quartile graduates (who'd never in the past have taken degrees), almost all the bankers & lawyers whose acceleration into the financial stratosphere has recently been vastly greater than heretofor - ?

Weekend Yachtsman said...

The explanation is credentialism, ie the spurious requirement for a degree - any degree - as a qualification for jobs which would just have been "picked up" in former generations.

And Nick is right, the average premium will be vastly skewed by the telephone-number salaries paid to the lucky few; a useless degree in "Sports Science" from the "University" of Nether Wallop, won't command a premium, of course.

Anonymous said...

Easy. If everyone is a graduate, there ain't a graduate premium is there? interpolate this down to 50% and the premium, whilst still there, is vastly diluted from the days of 5% graduates. And as ND and WY have already said, a lot of the degrees ain't worth jack.

Coney Island

Demetrius said...

When five per cent have a degree it is one thing. When fifty per cent do it is quite another. Also once people who did degrees might be headed for The Church, the Law or teaching or high level work in selected sectors. Now it is quite different and with an entirely different labour market. Comparisons with the distant past are untenable.

Anonymous said...

Of course, for the baby boomers, the late rise in earnings was in the end worth fuckall, as the brickies and plasterers had by then picked off the houses at 2x earnings, and by the time graduates could afford them, they were 6x earnings. The graduate premium today reflects the difference between being in a state sector job with a scale, and dole or worse.

Cascadian said...

"the man who earns a BA in history or philosophy"....will be damned lucky if he ever sees a decent salary let alone a premium.
He will likely end up stacking shelves at Tesco.

Meanwhile the carpenter will never be short of work, even lots of cash-only work at weekends that never get accounted for. Better yet if you are an electrician where the physical demands tend to be less and weekend work is always available.

bloke in france said...

Anyone here paid more for a 50 year old dentist than a 25 year old dentist?

Raedwald said...

Anonymous bloke in france said...

Anyone here paid more for a 50 year old dentist than a 25 year old dentist?

Um, yes; in the US, where the market is close to open - but no doubt your comment is confined to the European state-rationed price-fixed regulated socialised provision where charges bear no relation to market rates?

G. Tingey said...

And there are people like me, with a BSc in Physics & an MSc 689 eadthss
in Engineering, who never got a penny out of either .....