Graduate premium in UK regions ‘hasn’t fallen’, counters study

Graduate earnings in the UK have held up strongly since the late 1990s despite student numbers trebling since this period, with alumni living outside London among the biggest beneficiaries, new analysis says.

In a study focused on the UK graduate premium, economists at UCL, Cardiff University and the University of Oxford found that the earnings advantage enjoyed by graduates remained stable between 1997 and 2017 – not withstanding a dip during the recession of 2006 to 2012, after which it quickly recovered.

Overall, the graduate premium was maintained despite university participation rates rising from 11 per cent in 1997 to 33 per cent in 2017 – a finding that suggests UK higher education was doing a good job in meeting the economy’s demand for higher level skills, said Golo Henseke, associate professor in economics at UCL, who led the Degrees of Demand study, supported by the Centre for Global Higher Education.

“Graduate numbers have grown tremendously over this period and yet the pay premium has held up very well, even as the type of graduates has diversified,” said Dr Henseke.

“There is some new evidence to show that graduates have done worse since the pandemic, but our study – which goes up to 2017 – suggests employers are willing to pay a higher price for the skills that graduates offer.”

The research follows an Institute for Fiscal Studies report of 2022, which also found the UK graduate premium had remained “extraordinarily flat” even while the proportion of people with degrees tripled between 1993 and 2015, with graduates best placed to take advantage of the digital revolution.

The latest study also examined how graduate earnings have fared in the UK regions after a paper co-authored by the former Labour minister Ed Balls, along with US-based economists, last year claimed the “university wage premium was much higher in London” and that higher graduate numbers over the past decades had depressed the graduate premium outside London.

In contrast, the Degrees of Demand study found demand for graduate skills in the UK’s regions was stronger than in the late 1990s and there was no discernible fall in the graduate premium.

“Those regions where the share of graduates expanded fastest is where demand for graduate skills has also grown fastest, so you’ve seen a growth in graduate wages there,” said Dr Henseke.

“That makes complete sense because, if you have highly skilled workforces in these regions, industries will want to take advantage of these people. Employers might move there or those already in these places will change production methods or adapt the services that they produce to take best advantage of these graduates.”

While the relative lack of high-quality vocational qualifications in the UK might partly explain why graduates continue to earn substantially more than non-graduates, the latest results suggested the expansion of UK higher education since the 1990s had been largely successful in labour terms, said Dr Henseke.

“The huge expansion of university education has certainly helped to transform Britain into the knowledge-based economy that it is today,” he said.

jack.grove@timeshighereducation.com