Tag Archives: returns to degrees

The myth of over-education

The fear that we are over-educating our population is not a new concept.

Back in 1963, when only 1 in every 100 people went to university full-time, policymakers were already convinced that any expansion of the sector would result in an over-supply of graduates – many of whom were incapable of benefiting from higher education – and the inevitable falling wage premium (Barr, 2014).

Fast forward 50 years, with nearly 40% of young people enrolling in university (BIS, 2014), and here we are, still having the same argument. A report issued today by the CIPD argues that the number of graduates has now “significantly outstripped” the creation of high-skilled jobs, and that over-qualification at “saturation point”. This has led to calls for the government to encourage alternatives to university, and for our young people to think twice about going to university.

But do we really have too many graduates?

Whilst there are many ways to answer this question, simple economics can help us here.

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The boom in postgraduate education and its impact on wage inequality

by Joanne Lindley, Kings College London and Stephen Machin, London School of Economics

Mass participation in higher education has altered the typical path followed by university graduates. The norm used to be that after obtaining an undergraduate degree, people would finish their studies and enter the labour market. These days, many more students stay on to invest in postgraduate education. Indeed, by 2009 just over 10% of the workforce in Britain and the United States – and more than a third of all graduates – had a postgraduate qualification.

It is now widely understood that despite rapidly growing numbers of university-educated workers, increased relative demand for their skills has been a key driver of overall wage inequality.

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University Exam Results Matter

By Georg Graetz, London School of Economics

How much does the class of degree affect earnings in the first job?  Using exam results and class of degree from five cohorts of London School of Economics (LSE) undergraduates in combination with a survey of their income in year after they graduated we find there are significant gains from just making the grade.

Specifically:

  • The average wage pay-off to a First compared with a 2:1 is pretty small – around a 3% higher expected wage.
  • There is a bigger difference between a 2:1 and 2:2 – a 2:1 is worth about 7% higher wages.
  • These results are driven by males: men get about 6% in higher wages from a First whereas there are no significant gains for women.
  • The cash premium for getting a First for a male is about £1,780 whilst women basically get nothing

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