“Graduates on average have better employment prospects and can expect to earn at least £100,000, net of tax, more than non-graduates across their working lives.”
Universities and science minister David Willetts, commenting on The Push National Debt Survey, 13 August 2010
Students will owe nearly £25,000 when they graduate, a new survey by Push reported. But don’t worry, says Universities Minister David Willetts, it’s a good investment as you’ll earn £100,000 more for your £25,000 debt than those with only A-levels.
It’s a hot topic when the government is considering replacing tuition fees with a graduate tax – in the autumn, former head of BP Lord Browne is due to publish his Independent Review of Higher Education and Student Finance where he will set out all the options. So far, a graduate tax seems to be the preferred option for the coalition – particularly when the Lib Dems were so adamantly against fees. But expect to hear more arguments about the benefits of university education as the debate goes on. So, FactCheck thought we would see if graduates really do benefit that much?
The first mention of the £100,000 figure we can find is from 2002. Previously in 2001 the government had calculated the so-called graduate premium at £400,000 (gross) over a working lifetime. This figure was rejected however, as the calculations had compared the earnings of graduates with the population as a whole including graduates, pushing the average up.
The government decided a better way to make an estimate would be to compare the earnings of graduates (of bachelor’s degrees or equivalent) with those of people who stopped their education at A-level (meaning those gaining two or more A-levels). Analysis of these figures led to an estimate of the graduate premium at £120,000 (gross), which is the basis for Willett’s line that graduates can earn “comfortably more than” £100,000 net of tax but not including National Insurance contributions.
The calculation is eight years old, so why is it still being used when fees and the number of graduates in the jobs market have changed so much? The Department for Business Innovation and Skills told FactCheck that a pre-recession report by PricewaterhouseCoopers (PwC) for Universities UK confirmed the validity of the current estimate. In fact, the PwC report suggested the graduate premium may be even higher at £160,000 gross. Remember that the figure is an average so some degrees such as architecture and medicine are likely to lead to higher salaried jobs than others. It’s also worth mentioning that another benefit of a degree education according to the PwC report is that holders are more likely to be in continuous employment than those without, boosting their earnings overall.
There is a flaw in this calculation however: it is based on historical data from the Labour Force Survey. The PwC report’s co-author John Lakin told FactCheck he doesn’t see any other way of measuring it. This means the sums don’t take into account potential changes in the market or the economy that might affect earning potential, for example the PwC report is from 2007 and is based on data up to around 2005 so it doesn’t cover the period since the recession. The data is also based only on earnings, without taking into account deductions such as National Insurance contributions or the impact of top-up fees introduced in 2006.
So can we accurately value the impact of a degree on earnings? Kate Purcell from the Institute for Employment Research at Warwick University is doubtful: “Nobody really knows what the graduate premiums of the current generations of graduating students will be because extrapolation from previous patterns of graduate earnings can only be essentially ‘guesstimates’.
“The ratios of graduates/non-graduates in the labour market have changed so much, the range of skills and knowledge they have acquired in HE cover a far broader range than before, the skills required now and in the future are based on very different industrial, occupational and technical contexts and there is a huge- and growing – dispersion of graduate earnings and consequently, the extent of premiums.”
So, all the estimates suggest that Willetts is right – based on the data available a graduate does on average earn £100,000 more over their working lifetime than a non-graduate. But that is a gross figure – it doesn’t account for the cost of the degree or student debts, for example, that the Push survey sets at £25,000.
And will it still hold true for future graduates? Well, that remains to be seen. But we are sure it will be a source of discussion when Lord Browne’s recommendations are released in the autumn.