Too many graduates? The market disagrees

As higher education has expanded, so has demand for degree holders, say Peter Elias and Kate Purcell

Are graduates taking over areas of work that were previously the domain of non-graduates? If so, why and where? Has the increased supply of graduates simply raised entry-level requirements to an increasing range of occupations, or have there been fundamental changes? These questions have generated considerable debate, often on impressionistic or dated evidence.

At the beginning of 2001 there were three times as many new graduates entering the labour market as there were at the start of the 1970s. Change on such a scale has put the spotlight on the extent to which the knowledge acquired on undergraduate programmes and the skills developed through studying for a degree are used in the labour market. The presence of graduates in occupations that have until recently been regarded as low-level and undemanding has been used as a criticism of expansion in general and, recently, as an indicator of the relative performance of higher education institutions.

But a simple split between graduate and non-graduate work is no longer adequate. Some occupations - medicine, law, dentistry - are by definition graduate only. In others, it is not clear that the skills we teach our graduates are used and developed in their jobs.

Rapid changes in the economy require a reappraisal of the way graduate employment is defined. To make sense of the diversity of graduate employment, jobs need to be reclassified to give an indication of the potential that exists to absorb the growing supply of graduates in the labour market. In our research, we adopted a fivefold classification based on analysis of national employment trends and occupational prerequisites, which added intergrades of "modern", "new" and "niche" graduate employment.

For the past five years we have studied a large sample of 1995 graduates, tracking them through the first seven years of their careers. A key objective of our research, funded by the Economic and Social Research Council and the Central Services Unit, is to explore the extent to which graduates use the skills they have developed and the knowledge gained on their undergraduate courses.

Analysis of changes in the UK occupational structure over the past 25 years shows that most employment growth has been in new graduate occupations, mainly administrative, technical and caring. More than 1.2 million jobs were created in this category between 1975 and 2000. Many graduates in our survey took non-graduate jobs in the first few years after graduation. The movement out of these jobs among the 1995 higher education cohort in their first few years after graduating is remarkably similar to patterns shown for earlier cohorts of graduates. Thus it seems that the labour market is absorbing the increased supply of graduates. But are skills and knowledge being used appropriately?

In terms of a debate about graduate underemployment or under-utilisation, the new graduate jobs are the most interesting category to explore further.

What kinds of jobs does it include, and who gets them?

Our analysis is still incomplete. The project includes a follow-up interview programme of a selected subsample. It is clear that many of the new graduate job holders interviewed so far work in occupations that have elements of management, administration, problem-solving and interpersonal skills, while others are employed because of their specialist technical expertise - rather in the same way as traditional and modern graduate job-holders.

If the demand for graduates had not increased, the huge expansion of the higher education sector would have caused the "graduate premium" (the extra earnings associated with a degree) to fall over the past 15 years. Plotting the earnings of students who graduated in 1980 over the period to 1986-87 showed an average rate of growth of 7 per cent a year. This compares well with the 6.5 per cent average growth in earnings for the 1995 graduates over the period up to 2002. The rate of growth of earnings for those who hold an education or arts degree is now higher for 1995 graduates than it was for those who graduated with a degree in these subjects in 1980.

While the fit between supply and demand for graduates from different disciplinary areas varies, we see little clear evidence from our analysis so far of an oversupply of graduates.

Peter Elias is a labour economist at the University of Warwick Institute of Employment Research and Kate Purcell is professor of employment studies at the University of the West of England.

Details: www2.warwick.ac.uk/fac/soc/ier/research/glmf/