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August 29, 2005

A Degree? Don’t Bother.

You know that idea that graduates earn more over a lifetime than non-graduates? That therefore everyone should go get a degree? Turns out not to be quite true:

The DfES makes great play of its estimate that the graduate earnings premium, the average increase in total lifetime earnings enjoyed by a graduate compared with a non-graduate, is as high as £400,000. This handsome premium was, incidentally, used by the Government to justify the increase in tuition fees to £3,000 (which is due to start next year).
....

According to one study by Nigel O'Leary and Peter Sloane of Swansea University, the graduate premium is well under £400,000 and falling, reflecting the fact that the huge rise in the number of students in the 1990s is eroding the premium. They estimate that graduates can now expect to earn an average earnings premium of just £140,000-£150,000 over school leavers with two or more A-levels.

Subject choice is crucial. Other things being equal, the rates of return to maths and computing, engineering and technological subjects and medicine (the "hard" subjects) are, unsurprisingly, robustly positive. Other choices are less remunerative and, in the case of arts degrees for men and after allowing for the new £3,000 level of tuition fees, the calculated average rate of return is actually negative.

It depends what you study and where you study it. Financially, as above, many men would be better off studying plumbing...not something you do at university, rather than media studies. The only real problem with that is that there would be no employment for those Polytechnic lecturers who were too dim to become Labour MPs.

August 29, 2005 in Academia | Permalink

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» A Degree of Common Sense from L'Ombre de l'Olivier
Ruth Lea, director of the Institute for Policy Studies, has an article in the Torygraph today about the value of a university degree which points out that, surprise surprise, some degrees are worth getting while others aren't (hat tip Tim Worstall). [Read More]

Tracked on Aug 29, 2005 9:46:15 AM

Comments

I am currently working as a locum GP, my charges for a surgery are £70-£80 per hour. I would be better off being a self-employed plumber.

Posted by: Thersites | Aug 29, 2005 11:44:03 AM

There is, of course, the other aspects of University Life - the education for its own sake.

I know I could have earnt more as a plumber, but I would have hated the actual job.

The satisfaction of learning is something which should not be overlooked. Indeed, I'm still studying now with the Open University (one of the finest institutions in this land). When asked why, I reply 'for the fun of it'.

Some people cannot seem to accept this as an answer, others understand completely. The set of things I am doing is diametrically opposed to the day job, intentionally so.

Nevertheless, I disagree with the concept that we should have an artificially high target for University - not everyone is suitable for academia, and it leads to shortages elsewhere (witness plumbing!)

I can get fully behind removing barriers to university though, and inflating numbers has increased costs and added barriers for some people.

Posted by: Murk | Aug 29, 2005 1:07:53 PM

I have a good honours degree in Economics but will be spending the last twenty or so years of my working life as an electrician. I can earn very good money and work when and for whom I wish with very little of the stress associated with my white collar life.

All thanks to government policy in the area of higher education!

Posted by: Paul | Aug 29, 2005 3:35:55 PM

Exactly, a degree in social work hardly puts you in the top income bracket, but you will pay just like if you do a business studies degree.

Rather than new Labour's current policy, would it not make sense to have a graduate tax code? So as your earnings increase, you pay a higher rate of income tax than your non graduate peers in the same tax bracket?

So those who benefit financially from their degrees put something back into the pot, and those contemplating a degree that doesn't have the same potential for earning wads of cash, are not deterred.

As Murk sugests, I think the 50% target will deflate withing a few years, as the job market is flooded with graduates, without jobs and huge debts.

I work in inner city Liverpool, people I know at work with kids in their final years of school are questioning whether it is worth going to University now.

Debt means something very different to middle class families than to people from lower income backgrounds.

This policy has not widened aspirations for those denied opportunity in the past, it has simply enabled all miiddle class kids to go to university if choose.

Posted by: blairwatch | Aug 29, 2005 3:55:43 PM

I doubt even that it's the 'hard' subjects that bring a good rate of return any more. What matters is whether you have a closed shop (e.g. law, medicine)or a public sector employer or are in some way sheltered from international competition.

As John Clare has pointed out in the Telegraph, most engineering subjects and computing have some of the worst rates of graduate employment.
The idea that electronic or mechanical engineering are attractive career options any more is laughable. The electronics industry in the UK, for example, has shrunk by 40% snce 1997.

Posted by: HJHJ | Aug 30, 2005 11:27:27 AM

I did a bit of work in this a few years ago. The big problem is that the advertised 'average' graduate salary is the Association of Graduate Recruiters average - mostly bluechips or big companies with graduate training programmes and the clout, the career structure and pay to attract the best graduates. Hardly representative.

I also find that the perception of the graduate labour market remains 30 years old, and a graduate job is seen as a trainee professional or working as a graduate management trainee in Unilever or whatever. The graduate labour market is highly segmented in actual fact, and you can't lump them all together. It is unfortunate that there's a lack of decent information on the pay off from university as some people would have been better off training as an apprentice rather than getting a below average degree. But how do they make this decision? difficult for them.

What you can do/ I did is look at the median earnings of people by their highest qualificatio level currently, and by age group (from the Labour Force Survey). This also gives some idea of the lifetime wage premium and is a bit more representative. This also avoids having to cast forward projections of earnings which is a bit less accurate.

I did this here for Scotland:

http://www.futureskillsscotland.org.uk/uploadedreports/Lifetime_earnings_&_qualifications2004AUGUST2.pdf

Posted by: Angry Economist | Aug 30, 2005 2:06:04 PM

I would have to agree with this article. I graduate in 2004 and am still to find a permenant job. I got 28/30 in MS Word test at one recruitment agency. When I forwarded the results to another recruitment agency they said I didn't have the right skills.

Posted by: Matthew Freedman | Jul 14, 2006 4:58:33 PM