Technical Report .... as to what constitutes a 'graduate' job or 'over-qualification'. ..... incomes, employment and career prospects is an important area for.
Technical Report
The Changing Graduate Labour Market: A Review of the Evidence
Professor Phillip Brown School of Social Sciences, Cardiff University With Claire Smetherham School of Social Sciences, Cardiff University
TABLE OF CONTENTS List of Figures
iv
List of Tables
vi
Executive Summary
viiii
Background
viiii
Key Findings
ixii
Implications for Policy and Future Research
xiii
Main Report
1
1.
Purpose
1
2.
Background
1
3.
Findings
4
3.1
4
3.2
3.3 3.4 3.5 3.6
3.7 3.8 3.9 3.10
What many graduates earn will not match their expectations Most graduates will earn more than non-graduates but the ‘premium’ is often much lower than the 50 per cent difference in life-time earnings reported in the White Paper on The Future of Higher Education There is evidence of significant and growing income differences between graduates in the labour market There are significant ‘sectoral’ and ‘occuptional’ differences in graduate/non-graduate earnings ratios There are significant regional differences in graduate incomes Existing research evidence also shows that graduate earnings reflect a number of other factors, including the status of the university attended, the degree subject studied, and degree classification Major gender differences remain in areas of specialist knowledge, industrial sector, occupational and income Class and ethnic inequalities also continue to be a feature of educational and labour market outcomes There is evidence of graduate ‘over-qualification’ but little agreement about how to measure it Claims that half of those entering the workforce will require higher education to meet the requirements of the ‘knowledge’ economy have
7
11 17 21 23
30 35
40
ii
3.11 3.12
4.
little empirical support on either side of the Atlantic. There is also little evidence to support the view that Wales is a vibrant knowledge-driven economy There is little agreement about the extent or nature of skill gaps in Wales There is high degree of integration between the Welsh and English labour market, with considerable movement of students and graduate employees across national borders
Implications for Policy and Future Research
Bibliography
52 56
59 64
iii
List of Figures Figure 1: Job hunter’s expected starting salaries
5
Figure 2: Average returns to education: Private Real Rates of Return, University-Level Education, 1999-2007
7
Figure 3: Male Graduates aged 26 to 35 – net weekly earnings (full-time employees and self-employed)
11
Figure 4: Women Graduates aged 26 to 35 – net weekly earnings (full-time employees and self-employed)
12
Figure 5: U.S. male hourly wages by decile within educated groups, 1973-2001
13
Figure 6: U.S. female hourly wages by decile within educated groups, 1973-2001
14
Figure 7: Estimated net weekly income for full-time employees only, by gender, qualification and decile (1983-2001)
15
Figure 8: Average earnings of graduates by degree subject
27
Figure 9: The occupational distribution of graduates
32
Figure 10: Distribution of graduates by industry sector
34
Figure 11: Higher education entrants by social class groups (1960-2000)
35
Figure 12: Blue chip graduate vacancies in the UK 1997-2003
42
iv
Figure 13: Changing occupational structure of male employees in employment, 1975 to 2000 by SOC (HE)
43
Figure 14: Changing occupational structure of female employees in employment, 1975 to 2000 by SOC (HE)
43
Figure 15: Job classifications – all UK jobs 1971-2010
47
Figure 16: Percentage changes within categories between periods
48
Figure 17: Job classifications – all jobs 1971-2010 (Wales)
49
Figure 18: Annual employment increase: head count
50
v
List of Tables Table 1:
Net weekly earnings (full-time employees only) by cohort by gender by qualification level.
9
Table 2:
Graduates and non-graduates: net hourly pay (employees full-time and part-time) 30 Year Olds.
10
Table 3:
Earnings ratio between 10th percentile and 90th Percentile, Wales 1993, 1997 and 2001*
16
Table 4:
Earnings ratio between 10th percentile and 90th percentile, Wales 1993, 1997 and 2001*
17
Table 5:
Net weekly earnings of graduates aged 26-35 (full-time workers) by industrial sector [prices/year]
18
Table 6:
Median weekly gross pay between degree holders and those without in the UK (21 years old or older) 1993 and 2001
20
Table 7:
Earnings (£) of graduates in Wales over time compared with other regions
21
Table 8:
Average weekly earnings (£) of full-time graduate employees by region of place of work, and age
22
Table 9:
'Real' graduate earnings by region
23
Table 10:
Top ten worst graduate starting salaries by institution
25
Table 11:
Average annual income of respondents with Firsts by area of degree study (1997 cohort)
26
Table 12:
Table of HE subjects and differences over time (UK)
28
Table 13:
Average annual income of respondents by degree classification (1997 cohort)
29
Table 14:
Average annual income of respondents with Firsts by gender (1997 cohort)
30
Table 15:
Average annual earnings of graduates, 1999-2000
31
Table 16:
Occupational distribution of graduates by disciplinary background
32
Table 17:
Distribution of employment of graduates by major economic sector
33
vi
Table 18:
First destinations of full-time degree (home domiciled) graduates from English universities, 2001/02 (percentages are based on known destinations)
37
Table 19:
Whether a degree was a formal entry requirement for respondent’s current job by degree class (1997 cohort)
39
Table 20:
Percentage increases and percentage shares of economy compared
41
Table 21:
Employment by education and training category, 2000-2010. (Monthly Labor Review)
45
Table 22:
Distribution of full-time graduate employees in the private and public sectors in each region by place of work
51
Table 23:
Qualifications demand and supply, Wales, 2001
53
Table 24:
Patterns of qualification mismatch, Wales and Britain, 2001
55
Table 25:
Particular skills index By region/country, 2001
56
Table 26:
The ‘retention’ rate of graduates entering employment by country of domicile and country of HEI attended
57
Table 27:
Employment destination of UK graduates gaining qualifications in UK IHEs by country of domicile, country of IHE and location of first destination
57
vii
Executive Summary Background The Westminster Government has primarily justified the expansion and future funding of higher education on economic grounds. It is assumed that there is a growing demand for high skilled workers and that graduates typically earn significantly more than non-graduates. The purpose of this report is to ensure that a comprehensive review of the available evidence is conducted to enable the National Assembly of Wales to develop an effective and fair system of student support. This review examines evidence from across the UK, given that many Welsh graduates are likely to work outside of the Principality at some stage in their working lives. International comparisons are limited to the United States. The evidence presented in this report is based on survey data to examine trends in the demand for graduates in Wales and beyond. It also investigates trends in graduate incomes. It goes beyond an analysis of rates of return between graduates and non-graduates to include differences amongst those with graduate qualifications. Gender differences are also examined, as existing evidence shows that although there are more women in higher education, men typically earn higher incomes. One of the major problems in undertaking this research is the lack of adequate data on graduate employment in Wales. Most large-scale data sets for the United Kingdom have relatively small samples at the regional level that make it difficult to assess their reliability when attempting to generalise about graduate employment in the Principality. The evidence on graduate employment and income is more complex than the headline figures suggest. There are also conceptual confusions and disputes as to what constitutes a ‘graduate’ job or ‘over-qualification’. Therefore, the evidence presented in this report should be treated as indicative rather than conclusive. However, its general findings raise serious doubts about the claims made about graduate earnings and employment trends in the White Paper on the Future of Higher Education that informed new legislation on the future funding of higher education in England.
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Key Findings · What many graduates will earn will not match their expectations. On
average, students expect to earn around £19,000 in their first job after university. While this seems to be in line with what many large graduate employers offer, the Higher Education Statistical Agency (HESA) reported an average of £17,000 per annum in 2003 (including full-time and part-time), and the NatWest survey reported a seven per cent rise in graduate starting salaries from £12,659 in 2003 to £13,600 in 2004.
· Most graduates will earn more than non-graduates but the ‘premium’ is often much lower than the 50 per cent assumed by the Westminster Government. Based on a new analysis of longitudinal data, the lifetime difference between the median graduate and non-graduate was £166,000 (net income). In 2000, the median graduate earned 36 per cent more, rather than the 50 per cent premium reported in The Future of Higher Education (2003:59). It also shows that higher earning nongraduates earned 17 per cent more than the median graduate and 80 per cent more than low earning graduates. None of these figures take into account the financial costs of a university education.
· There is evidence of significant and growing income differences
amongst graduates. Drawing on the same data set as above, differences within the graduate category were found to be twice that between graduates and non-graduates. This amounts to a £374,000 lifetime difference between median and high earning graduates [..]. Other evidence from the General Household Survey shows that top earning male graduates are racing away from the rest, although this was not the case for women. Data from the United States also show that high earning graduates have pulled further away from the rest, but unlike the British data, it also shows that high earning female graduates have made the most significant gains.
· There is little evidence of a significant decline in graduate earnings, but there is also no evidence that the ‘knowledge’ economy has increased the value of human capital for graduate employees. On both sides of the Atlantic, it is only high earning graduates that have enjoyed a sizable increase in real income over the last years.
· Labour Force Survey data points to significant ‘sectoral’ and
‘occuptional’ differences in graduate/non-graduate earnings ratios. In Wales, this data suggests that these differentials may be narrowing, especially for graduates on lower incomes. However, the small size of the sample means that this finding needs to be treated with caution, although there is clearly a need for further research.
ix
· Major gender differences remain in areas of specialist knowledge,
industrial sector, occupation and income. Research shows that female graduates in their early twenties receive on average 15 per cent less, and the gender gap appears to widen with age. Female graduates are almost twice as likely to work in the public sector and dominate in education and other public services, while men dominate in manufacturing and construction. However, women have made considerable progress in gaining access to the professions.
· Class and ethnic inequalities continue to be a feature of educational
and labour market outcomes. Recent studies show that ethnic minority students are now more likely to participate in some form of higher education than the white population. However, they are more likely to be found in low-status institutions and confront disadvantage within the job market. On first destination, the unemployment rate for white graduates was six per cent but just over 11 percent for ethnic minority groups. However, there are also significant differences within the ‘nonwhite’ category.
· Research also shows that those from higher socio-economic groups
are more likely to be in managerial and professional jobs traditionally associated with a university degree. It also shows that those who studied near the family home or returned ‘home’ after graduation to save money had particular difficulty finding suitable employment. It should also be remembered that the impact of class and ethnic inequalities are often hidden because they are ‘institutionalised’. While, for example, leading companies do not directly discriminate against those from working class backgrounds or those of Caribbean descent, they are less likely to attend the elite universities from which these companies frequently recruit.
· There are significant regional differences in graduate incomes. The
major difference is between London and the South East, compared to other regions. The median income for graduates between the ages of 20-34 in Wales was £19,292, whereas the figure for London was £25,012 in 2002. The median for all regions was £21,474. These differences reflect the pattern of employment in various parts of the United Kingdom. Half of all full-time graduates in Wales work in the public sector, whereas it is less than a quarter in London and a little under 40 per cent in the North West of England and Scotland.
A more detailed analysis of regional difference in earnings show that while ‘managers and senior officials’ in Wales are paid less (on average) than anywhere else in the UK, those in ‘personal service occupations’ or in ‘administrative and secretarial occupations’ fare considerably better when compared to other regions. Moreover, when cost of living is taken into account, graduate earnings in Wales move from ninth to third behind the North and Yorkshire and Humberside, ‘Greater London’ moves from second to bottom.
x
· There is also evidence that differences in graduate earnings reflect the
status of the university attended, degree subject and degree classification. The existing evidence shows that those in ‘older’ universities have an earnings premium of at least 10 percent over those from other institutions of higher education. It also shows that what undergraduates study at university can have an impact on occupational earnings. Both males and females with degrees in the fields of Maths and Computing and Medicine and Related Subjects had the highest incomes, while those with Humanities, Arts and Education degrees the lowest. However, there were important gender differences, as men are shown to earn more than women in all subject areas.
· Recent research has also compared the earnings of graduates with
first class degrees against those with degrees classified as lower second class. On average, those with first class degrees were not only found to earn more, but also more likely to be in a job that utilised their knowledge and skills than those with lower second class degrees. However, this research also confirms the importance of gender - as the average income for women with first class degrees was similar to men with lower second class degrees, while men with a first enjoyed a significant premium over the rest.
· It was difficult to find evidence on the graduate premium for part time or mature learners. This is an area that requires further investigation.
· Claims that half of those entering the workforce will require higher
education to meet the requirements of the knowledge economy finds little empirical support on either side of the Atlantic. Official data from the United States shows that occupations requiring a Bachelor’s degree or higher is predicted to increase by less that 2 percentage points, from 20.7 to 21.8 per cent between 2000-2010. A re-analysis of the occupational data in the UK also shows that the proportion of ‘knowledge’ workers will increase from 28 per cent in 1999 to 29 per cent in 2010. The figures for Wales were expected to remain constant at 24 per cent. Other evidence based on data from the Association of Graduate Recruiters, which represents many of Britain’s leading employers, shows considerable fluctuation in the demand for graduates. Vacancy levels in 2002/03 had not recovered from a high of 25,000 in 1997/98.
· Regional differences in the demand for skills are subject to contrasting
interpretations. Evidence drawn from the British Skills Survey suggests that in 1992, jobs in Wales required better qualifications, needed more training and took longer to learn than jobs elsewhere in Britain. But over the last decade, jobs in Britain have generally become more skilled, yet in Wales the trend has been in the opposite direction.
xi
Again, these conclusions are based on a very small sample that highlights the urgent need for more research. Other research suggests that there is no evidence that Wales is falling behind other regions of the United Kingdom.
· A number of studies have found that approximately 30 per cent of
graduates are ‘over-qualified’ in terms of what is required to fulfil their current employment. However, there are different measures of ‘overqualification’ that have led researchers to report findings varying from 10 to almost 50 per cent. Studies that report over-qualification at the higher end are usually based on the first jobs that are entered after graduation. Virtually all studies show that this mismatch declines as graduates gain more work experience, but there is little evidence to support the claim that employers will ‘grow’ jobs to utilise this untapped supply of higher level skills. Further research is required to examine whether over-qualification has increased with the expansion of Higher Education.
Implications for Policy and Future Research · This report has focused on the relationship between higher education and the labour market. While the contribution of higher education to individual prosperity and economic competitiveness is of obvious importance, this analysis needs to be considered alongside the wider personal and social benefits of learning within higher education.
· Although it is legitimate to talk about higher education in Wales or the
Welsh economy, they are inextricably linked to institutional arrangements in England. Many Welsh students study and work in England, although many return to the Principality. Ultimately, changing the system of higher education in Wales depends on changing the system in England. Therefore, the room for manoeuvre in terms of policy reform in Wales is constrained by these broader considerations.
· Much of the debate about ‘graduate’ employment is based on outdated assumptions. The idea of a ‘graduate job’ had some validity in the 1960s as many of the ‘elite’ that entered university found themselves on ‘fast track’ management training programmes or in the established professions such as law and medicine. It also provided a useful ‘short hand’ for jobs that offered high salaries, good promotion prospects, high social status and job security. While this picture of graduate employment may remain dominant in the brochures of leading graduate employers, it is far removed from the occupational realities confronting many graduates.
· The evidence presented in this report highlights the problem of using
data from organisations such as the Association of Graduate Recruiters (AGR), as representative of all graduates. The majority of graduates do not work for leading ‘blue chip’ companies but for small
xii
and medium sized organisation which typically have lower salaries and fewer prospects for internal promotion. But it also highlights the danger of using ‘average’ incomes which obscure the realities of today’s labour market, and that reveal large differences in the incomes of people with the same level of education.
· The evidence presented in this report shows that it is misleading to
assume that a university degree is the route to high skilled, high waged employment. While some graduates are able to capitalise on their higher education to secure managerial and professional jobs, many others are forced to enter jobs for which they are over-qualified and under-paid (in terms of the expectations of what they thought a Bachelor’s degree would deliver). The prospect of significant debt resulting from their ‘investment’ in higher education will only add to a feeling that the ‘system’ has let them down.
· While the abolition of university fees has been ruled out by the current
Labour Government in Westminster, the findings of this report suggest that a better way needs to be found to share the ‘risks’ involved in pursuing higher education. The issue of shared risk must also take into account periods of economic downturn and rising graduate unemployment. Given the current limitations on what a viable system of funding for higher education in Wales could look like, one option is to adopt the principle of ‘no win, no fee’. This has the major advantage over the English system of removing the sense of personal debt. There is no personal debt attached to an individual who has been through higher education in Wales (although it may be difficult [..] to apply this to Welsh students who study in England). But if an individual is in employment that meets the appropriate earnings threshold - if they ‘win’ in the sense of earning a significant graduate premium - they will pay a ‘knowledge dividend’ through the tax code while they are earning at that level. They would continue to pay this dividend until both fees and state support with subsistence are covered. Those from deprived backgrounds could be offered non-repayable grants to cover part of their subsistence costs or fees, and the overall amount payable could be adjusted for those working in ‘key’ services.
· This report also highlights the need for a major review of social and
economic data sources within Wales. It is essential that the Labour Force Survey, British Skills Survey, etc. include a significant Welsh sample to better understand trends in employment and the labour market within Wales, and how these compare with trends in other parts of Britain and beyond. There is also a need to coordinate all the research on education, skills and employment that is currently being conducted on Wales.
xiii
· Further international comparative research is also required. Virtually all
the developed economies have pursued the same skills agenda in the belief that advanced knowledge and skills are the key to economic competitiveness. However, how the supply of graduates is absorbed (or not) into national labour markets and its consequences for graduate incomes, employment and career prospects is an important area for future research.
· The expansion of higher education has been largely welcomed, but
there has been little research on the impact of mass higher education on the labour market in Wales and England. An unintended consequence may be to further disadvantage those without a degree, as employers asked for degree level qualifications for jobs that were previously taken by those who had not entered higher education. This is also an issue that requires further investigation.
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Main Report 1.
Purpose
The purpose of this report is to conduct a comprehensive review of graduate employment in both Wales and beyond, to enable the National Assembly of Wales to develop an effective and fair system of student support. This report also considers implications for policy and identifies areas for future research.
2.
Background
The Westminster Government has primarily justified the expansion and future funding of higher education on economic grounds. It is assumed that there is a growing demand for high skilled workers and that graduates typically enjoy a significant knowledge dividend compared to non-graduates. Existing research evidence has already called into question government assumptions about the relationship between education, jobs and rewards1 If Wales is to develop an effective and fair system of student support, it will need to be evidence-based. There is a need for a systematic review of the evidence, both within Wales and throughout the UK. This focus is not only important as a ‘benchmark’ for Wales, but because large numbers of Welsh students work in other parts of the UK at some stage in their working lives. This research will investigate a number of large-scale quantitative data sets in order to examine trend data in the demand for graduates in Wales and beyond. It will also investigate trends in graduate incomes. This will go beyond an analysis of rates of return between graduates and non-graduates to include differences amongst those with graduate qualifications. Gender differences will also be examined, as existing evidence shows that although there are more women in higher education, men typically earn higher incomes. This report is based on evidence derived from seven Briefing Notes commissioned to examine various facets of the changing graduate labour market, and different data sets applicable to Wales and the UK. However, this report is not limited to the findings presented in the Briefing Notes, and its findings do not necessarily reflect the views of their authors. There is no attempt to arrive at a ‘consensus’ as to the nature of graduate employment, future earnings or occupational trends. Indeed, we felt it important to reflect some of the conflicting evidence and contrasting interpretations of the changing graduate labour market. While this report presents an overview of the key issues, it should be read in conjunction with the briefings notes that offer a more detailed account of the complexities confronting researchers and policy-makers in this field.
1
The briefing notes are as follows: Briefing No.1. A re-analysis of the evidence used by the government in support of changes in student funding in english universities Dr Anthony Hesketh, School of Management, Lancaster University. This briefing paper is based on a re-analysis of the data used by the Government in support of the introduction of tuition fees in England, including the idea that 80 per cent of new jobs would require graduate level skills and the claim of a 50 per cent graduate premium. The existing classifications of occupations and future skill demands in Wales and the UK are re-analysed to get a clearer picture of what constitutes ‘knowledge’ or ‘graduate’ work and to assess future trends. Briefing No.2. Education and the knowledge economy: some observations on the debate over graduate Incomes Prof. Hugh Lauder, School of Education, University of Bath. Dr. Muriel Egerton, Institute for Social and Economic Research, University of Essex. Prof. Phillip Brown, School of Social Sciences, Cardiff University. This briefing paper offers a new analysis based on data from the National Child Development Study, British Cohort Study and the General Household Survey. These data are used to examine the relationship between qualifications and income. Different data sets are harmonised to examine trends in graduate incomes over the last decade for both males and females. It also considers variations in the findings from different data sets, and what these data can and cannot tell us about changes in graduate incomes over time. The evidence presented in this briefing serves to question some of the core assumptions of what is known as the ‘skills bias’ thesis. Briefing No.3. A review of the literature on graduate employment, underemployment and unemployment Claire Smetherham, School of Social Sciences, Cardiff University. This paper reviews the existing research literature and findings on graduate employment, underemployment and unemployment. It includes a discussion of class, gender and racial differences where applicable. In addition, it examines the conceptual confusion that currently exists around the idea of a ‘graduate’ job, ‘graduate glut’ and ‘new’ graduate occupations.
2
Briefing No.4. Graduate Pay in Wales Dr Johnny Sung, Centre for Labour Market Studies, University of Leicester. Prof. David Ashton, Honorary Professor, School of Social Sciences, Cardiff University. This briefing is based on a new analysis of the Labour Force Survey, comparing the incomes of graduates and non-graduates in Wales and the UK over time. It examines changes in the relative pay of graduates based on gender, age, industrial sector and occupation. It also investigates within group difference in graduate earnings. Briefing No.5. An Analysis of Graduate Demand, Employment and Income Wales. Prof. Ralph Fevre, School of Social Sciences, Cardiff University. This briefing investigates the available evidence within Wales on graduate demand, incomes and employment, including an analysis of higher education and labour market statistics for the Principality. It also presents a regional analysis of Wales and the English regions that challenges some of the existing accounts of the relative performance of Wales within the UK. Briefing No.6. The Geography of Work Skills: A Focus on Wales Prof. Alan Felstead, Centre for Labour Market Studies, University of Leicester. This briefing presents new evidence on the skills demanded and used at work, drawing on the British Skills Survey data for the nine English regions, Wales, and Scotland. The paper also tracks how skill demand indicators have changed over the last decade. Particular attention is paid to the relative performance of Wales. Briefing No.7. Welsh Graduates and the Welsh Labour Market Mike Tomlinson, School of Social Sciences, Cardiff University. This briefing reviews the first destination data relating to Welsh graduates, including income and occupational differences related to institution, gender and ethnicity. It also examines the flows of Welsh graduates working in Wales and England.
3
3.
Findings
3.1.
What many graduates earn will not match their expectations.
On average, students expect to earn around £19,000 in their first job after university.2 This is expected to rise to £29,500 after five years.3 A recent study of student expectations found that 89 per cent agreed that the money spent on their education was a good investment in their future, although 62 per cent also agreed that the increasing numbers of graduates entering the job market will make it harder to get a job.4 Figure 1:
Job hunter’s expected starting salaries:
Percentage of finalists %
25% 20%
20% 15%
15% 10%
20%
17%
9% 7%
6%
5%
4%
0% less than 12,500
12,50014,999
15,00017,499
17,50019,999
20,00022,499
22,50024,999
25,50024,999
30,000 or more
Salaries £ Source: The UK Graduate Careers Survey 2004, High Fliers Research/The Times
.5
Figure 1 shows considerable variation in what graduates expect to earn in their first job, with 10 per cent expecting to earn over £25,000 and 22 per cent less than £15,000. Therefore, almost a quarter of graduates did not expect to reach the threshold set by the English Government for the repayment of university fees. However, when graduate expectations are compared to actual salaries, we still find that many graduates will earn less than they expect. The Higher Education Statistical Agency (HESA) reported an average of £17,000 per annum in 2003 (including full-time and part-time), but the NatWest survey reported a 7 per cent rise in graduate starting salaries, from £12,659 in 2003 to £13,600 in 20046. However, the Association of Graduate Recruiters that represent leading blue chip organisations reported a median starting salary of £21,000 in 2004.7
4
The reported differences in starting salaries found in these surveys reflect the problem of collecting accurate information for the full range of graduates within the labour market, and also highlight the problem of interpretation. It is, for example, difficult to assess whether a low starting salary reflects the realities of the labour market for graduates or a personal decision to find temporary employment before looking for a ‘graduate’ job. What is unequivocal is the fact that graduates will enter the labour market with increasing personal debt, although there are different estimates concerning the extent of their indebtedness. According to recent figures from NatWest, which roughly match other estimates (e.g. NUS) but exceed government calculations, the average graduate debt has risen by £4,055 since 2003 to £12,1808. Five years ago, it was £3,700. The proportion of graduates leaving university with debts of more than £10,000 has almost doubled, from 31 per cent in 2003 to 59 per cent in the summer of 2004. A third believe it will take them more than 10 years to pay off their university debts, an increase of 13 per cent on those surveyed in 2002. This year’s new students believe that they will have to find £950.32 a month to cover essentials such as rent, food and books, which means that they will require £26,000 to cover university expenses over a three-year degree. According to students interviewed for the NatWest study, the overall cost of a three-year degree now stands at £23,800, up from £19,400 last year. The latest survey figures from Barclays Bank show that student debt has risen five-fold since 1994.9 The average student now leaves HE owing £12,069 through credit cards, bank and student loans. Barclays warned that if the current trend continues, average student debt could top £33,708 after a threeyear degree by 2010, taking into account plans to charge variable tuition fees of up to £3,000 a year from 2006.10 Finally, the Student Living Report 2004 found that the average debt that students expected to leave university with has risen to £9,341 in 2003, a £525 increase from 2002 and a £1,208 increase from 2001.11 Similar findings were reported in the DfES study by Callender and Wilkinson, which showed that anticipated average debt on graduation increased by two and a half times since 1998/99 to £8,666.12 Half of all final year students anticipate leaving university with debts averaging over £9,673. 3.2.
Most graduates will earn more than non-graduates, but the ‘premium’ is often much lower than the 50 per cent difference in life - time earnings reported in the White Paper on The Future of Higher Education
It is widely claimed that university graduates enjoy a significant wage premium over non-graduates that more than compensate for any loss of earnings or the cost of fees and subsistence while at university. The White Paper on the Future of Higher Education in England states ‘Those who have been through higher education in the UK earn, on average, 50 per cent more than those who have not, and the rate of return from higher education in the UK is higher than
5
in any other OECD country’.13 At the time when the Higher Education Bill was going through parliament there was much talk of a £400,000 graduate premium in lifetime earnings compared to those who had not gone to university.14 Figure 2:
Average returns to education: private real rates of return, university-level education, 1999-2000
20 18 16 14 12 10 8
men
6
w omen
4 2
U ni
Ita ly
Ja pa n
te d
Ki ng do U m ni te d St at es D en m ar k Fr an ce N et he rl a nd s Sw ed en G er m an y C an ad a
0
Note: The average rates of return to tertiary education are calculated by comparing the benefits and costs with those of upper-secondary education. 15
Source: Blöndal, S., Field, S., and Girouard.
Figure 2 shows the rates of returns to education for individuals with university level education in a number of countries. Although this figure shows that the rate of return is higher for university graduates than non-graduates in all the selected countries, the value of the credential premium is subject to significant variation between countries. The returns to men in Britain is shown to be over twice those for Italy, Japan and Canada. There are a number of problems with this evidence. Firstly, variations in the returns to education in different countries highlight the fact that the relationship between credentials, jobs and rewards is far from straightforward. It is difficult to believe that knowledge and skills are valued less in Japan, Germany and Sweden than in Britain and the United States. Secondly, the figures for Britain and the United States may not reflect the higher value attached to ‘knowledge’ but the inferior quality of job opportunities for nongraduate jobs, compared to those available in other countries.
6
Thirdly, the graduate premium is based on past returns and there are no guarantees that future returns will remain constant or increase.16 Indeed, the more the domestic and global supply of highly qualified people increases, the greater the chances that graduate incomes may decline over time.17 Fourthly, much of the evidence is based on the ‘average’ graduate, but as we will show, this ignores significant differences in the ability and willingness of graduates to cash in on their investment in their ‘human’ capital.18 Finally, one-off surveys of rates of return offer little indication of trends over time, and especially the impact of educational expansion on graduate and non-graduate incomes. For this we require longitudinal data that is not readily available. To overcome this problem a number of new analyses were commissioned. The first is based on the National Child Development Study (NCDS), the British Cohort Study (BCS70) and the General Household Survey (GHS) (For a detailed discussion see Lauder, et al. Briefing No.2). Table 1 shows a clear gradient in earnings by qualification, although both males and females with two+ A levels earn more than those with sub-degrees such as HNDs or Foundation degrees. In 2000, those with a degree or higher earned 47 per cent more than those with no formal qualifications and 19 per cent more than those with two+ A levels. The premium for female degree holders was 58 per cent when compared to those without qualifications, dropping to 19 per cent compared to those with two+ A levels. Lauder and his colleagues also show that graduate weekly earnings are higher in 2000 than 1991, with the percentage increase greater for women, although women earn less than men in all categories. While women’s earnings have broadly increased, that of non-graduate men has declined, except for the lowest qualified, who may have gained from the introduction of the minimum wage. However, this increase in graduate earnings is primarily due to longer work hours, rather than an increased demand for skill. Over the 1990s, there was a four-hour increase in working hours (amounting to an extra half-day’s work per week).
7
Table 1:
Net weekly earnings (full-time employees only) by cohort by gender by qualification level Women
Qualification
1991
2000
Men Difference
1991
2000
2000-1991
Difference 2000-1991
None
162
199
37
219
256
37
Below CSE grade 1
179
198
19
255
249
-6
O-levels and CSE 1
201
218
17
269
263
-6
1 A-level and NVQ3
208
220
12
286
283
-3
2+ A-levels
254
265
11
339
316
-23
Sub-degree
255
260
5
324
307
-17
Degree and higher
299
314
15
368
377
9
All
225
248
23
294
290
-4
N
1622
2580
3538
3909
Source : NCDS (1991) and BCS70 (2000):earnings adjusted to April 2001 prices. Briefing No.2
Table 2:
Graduates and non-graduates: net hourly pay (employees full-time and part-time) 30 year olds.
Below Degree
Degree or higher
All
All
Women
Men
1991
2000
1991
2000
1991
2000
Low
3.6
3.7
3.4
3.6
4.0
3.9
Median
5.4
5.5
4.7
5.2
6.0
5.7
High
8.8
8.8
7.7
8.2
9.4
9.4
Low
5.1
4.9
5.0
4.6
5.4
5.3
Median
7.8
7.5
7.7
7.0
8.1
7.9
High
12.0
12.0
11.3
10.8
12.5
13.0
Source : 1991 National Child Development Study 1958 and 2000 British Cohort Study 1970 Wages indexed to April 2000 prices. Sample does not include the self-employed. Low =10th percentile, High = 90th percentile. Adjusted for age (see Briefing No.2)
If we now analyse this data based on net hourly earnings (and adjust the figures to take into account age differences between the two samples) we find that median earnings for both male and female graduates have experienced a slight decline in real earnings. In terms of the graduate premium, the lifetime difference between the median graduate and non-graduate was £166,000 (net income). In 2000, the median graduate earned 36 per cent more, rather than the 50 per cent premium reported in The Future of Higher Education (2003:59). However, this represents a 17 per cent decline, from a premium of £200,000 in 1991 (a drop from 44 per cent to 36 per cent) in the differential between the median 8
graduate and non-graduate. Table 2 also shows that high earning nongraduates achieved a 17 per cent advantage over the median graduates (a lifetime difference of £108,000) and 80 per cent more than low earning graduates.19 This analysis clearly demonstrates the problem of basing our understanding of graduate incomes on the ‘typical’ graduate, a problem further highlighted when we examine differences in earnings amongst those with graduate qualifications. 3.3.
There is evidence of significant and growing income differences between graduates in the labour market
Drawing on the same data set, Lauder and his colleagues also found that the differences in graduate earning were twice as large as those found between graduates and non-graduates. This amounts to a £374,000 lifetime difference between median and high earning graduates, which equates to a 60 per cent difference. Since 1991, there has been an increase in graduate income differentials, although this was slightly larger for males when the earnings of median and high earning graduates are compared. A review of the evidence on graduate earnings in the UK by Green et al. also found that the variance of graduate pay has increased since the mid-1980s.20 When broken down according to the 90th percentile (High), the Median and 10th Percentile (Low), a new analysis of the General Household Survey of those between the ages of 26 and 35 also found that top earning male graduates were racing away from the rest, although this was not the case for women (see Figures 3 and 4). Figure 3:
Male Graduates aged 26 to 35 - net weekly earnings (fulltime employees and self-employed)
1200 1000
Lowest decile
800
Median
600
Highest decile
400 200 0 1983-84
1991-92
2001
Source: General Household Survey (Crown Copyright) earnings adjusted to 2001 prices.Briefing No.2
9
It can be seen from the above figure that for low earning male graduates there was an increase in earnings between 1983/4 and 1991/2, but a slight decline between 1992/3 and 2001. For median earners there was an increase across the years, while for high earners there was a substantial increase between 1983/4 and 1991/2, after which their incomes take-off. Overall, the differences in income between high, median and low earners increased. For women the trends are different. For all income earners there is an increase between 1983/4 and 1991/2, thereafter incomes remain the same for low and median earners, while there was only a slight increase for high earners unlike their male counterparts. However, differences between high, median and low earners increase throughout this period for female graduates. Figure 4:
Women graduates aged 26 to 35 - net weekly earnings (full- time employees and self-employed)
1200 1000
Lowest decile
800
Median
600
Highest decile
400 200 0 1983-84
1991-92
2001
Source: General Household Survey (Crown Copyright); earnings adjusted to 2001 prices. Briefing No.2
Data from the United States also show that high earning graduates have pulled further away from the rest, but unlike the British data, it also shows that high earning female graduates have made the most significant gains. Based on evidence from the US, Figures 5 and 6 give a very different picture to the mantra of ‘learning is earning’. Indeed, if the idea of a graduate premium was calculated on the economic value of a college degree in 1973 as opposed to its current market value, the ‘headline’ story would look very different. These figures show that it is only male and female college graduates in the ‘higher earner’ category that enjoyed any growth in real income since 1973. In other words, the vast majority of college graduates have received no additional ‘premium’ on their investments in their human capital compared to those in the 1970s, although they continue to earn more than employees without a college education.
10
Figure 5:
US male hourly wages by decile within educated groups, 1973-2001
$50 $45 $40
HS low
H $35 ou $30 rly $25 w $20
HS median HS High College low College median College high
$15 $10 $5 $0 1973
1977
1981
1985
1989
1993
1997
2001
yea Note: low, median and high earners refer to, respectively the 10th, 50th and 90th percentile wage. Source: Lawrence Mishel, Jared Bernstein, Heather Boushy, The State of Working America 2002/2003 Economic Policy Institute.
Figure 6:
US female hourly wages by decile within educated groups, 1973-2001
$35 $30 HS low
$25
H ou $20 rly $15 w
HS median HS High College low College median College high
$10 $5 $0 1973
1977
1981
1985
1989
1993
1997
2001
yea Note: low, median and high earners refer to, respectively the 10th, 50th and 90th percentile wage. Source: Lawrence Mishel, Jared Bernstein and Heather Boushy. The State of Working America 2002/2003 Economic Policy Institute.
11
But even here the nature of the graduate premium is in question, as high earning non-college students were better paid than those college graduates on median incomes (although the differential has narrowed in recent years). As in Britain, female college graduates continue to earn less in each equivalent category than males, but perhaps the most striking difference is the way male and female top earners have raced away from the rest. In the United States, they now earn over twice as much as the median college graduate of the same sex. This underlines the need to avoid talking about the ‘average’ college or university graduate, for when it comes to rewards within the job market, some graduates are far more equal than others.21 Returning to the UK, the complexity of the changing relationship between credentials, jobs and reward can again be shown by drawing on data from the General Household Survey. Here we find that while the incomes of low earning graduates and median non-graduates rose during the 1980s, the picture changed in the 1990s. While the non-graduate incomes continued to rise for both women and men, they remain virtually static for male graduates on low incomes, and actually fell for low income female graduates (see Figure 7). Figure 7: ‘Estimated net weekly income for full-time employees only, by gender, qualification and decile (1983-2001)
275
275 249 234
225 203 175
211 201
237 228
Women Lowest decile graduate
205
Women Median nongraduate
179
Men Lowest decile graduate
150 142
Men Median nongraduate
125 1983-84
1991-92
2001
Source : General Household Survey (Crown Copyright). Briefing No.2
Evidence for Wales outlined in Briefing No. 4 by Sung and Ashton also provides evidence of the contrasting fortunes of graduates within the labour market. Based on the Labour Force Survey, they calculate the ratio which measures the difference between the earnings of those at the bottom of the labour market, at the 10th percentile, and those at the top of the labour 12
market, at the 90th percentile (See Table 3). For example, the gross earnings of graduates at the 90th percentile in 1993 was £538 per week, divided by those at the 10th percentile of £192 per week, produces a ratio of 2.80. By 1997, this had increased to 5.56, falling back to 4.21 in 2001. Why the incomes for low earning graduates (10th percentile) drop dramatically in 1997 is not altogether clear, but it does suggest that despite a modest recovery by 2001, they were earning less than in 1993. At the same time, high earning graduates (90 percentile) witnessed an acceleration in income between 1993 and 1997 which has remained constant. This evidence suggests a significant widening in earnings differential between those at the top and bottom of the graduate labour market since the early 1990s. This adds further support to the argument that high earners were putting more distance between themselves and other graduates. Table 3:
Earnings ratio between 10th percentile and 90th percentile, Wales 1993, 1997 and 2001*
With a degree
Without a degree
A 10 percentile
B 90 percentile
B/A
1993
192
538
2.80
1997
121
673
5.56
2001
160
674
4.21
1993
55
375
6.82
1997
62
408
6.58
2001
89
475
5.34
*Earnings – gross weekly pay in main job Source: Labour Force Survey, Sung and Ashton, Briefing No.4
For the non-graduates, there is a different story in Wales. In 1993, the differential between those at the top and those at the bottom was much greater than that for graduates, namely a ratio of 6.82. But by 1997 it had fallen to 6.58, and by 2001 to 5.34, an overall decrease of –1.48. Therefore, while the difference between the high earning and low earning graduates increased over this period, that between the non-graduates decreased.
13
Table 4:
Earnings ratio between 10th percentile and 90th percentile, Wales 1993, 1997 and 2001* A
B
10 Percentile
90 percentile
B/A
Male
1993
250.00
577.00
2.31
degree
1997
173.00
750.00
4.34
2001
231.00
712.00
3.08
1993
125.00
442.00
3.54
1997
100.00
528.00
5.28
2001
127.00
577.00
4.54
Female degree
* Earnings = gross weekly pay in main job Source: Labour Force Survey, Sung and Ashton, Briefing No.4
There are important gender differences in the Welsh context that are revealed in Table 4. This table shows data for male and female graduates that highlight major differences in the incomes of top earning graduates at the 90th percentile. It also shows that the differences in the earnings of high and low earning female graduates were greater than those for men. Although not shown in the above table, these ratios changed the longer graduates were in the labour market. The ratio for 30 year old male and female graduates increased from 3.52 to 4.82 between 1993 and 1997, but fell back to 3.32 by 2001. However, the ratio for graduates in their thirties was 4.74 in 2001 and 4.12 for those over 40. (See Sung and Ashton, Briefing No.4). 3.4.
There are significant ‘sectoral’ and ‘occuptional’ differences in graduate/non-graduate earnings ratios.
The income received by graduates depends on a range of factors explored in this review. One such factor is the industrial sector graduate employees are engaged in. Table 5 shows that within the UK, ‘business services’ offer the highest incomes for men, followed by ‘distribution’, whereas for women ‘transport and communications’ come top of the list, followed by ‘business services’. This is based on the General Household Survey where the numbers of graduates is around 600, but it does provide further evidence about incomes over time (see Lauder, et al., Briefing No.2). The evidence here suggests that women not only receive less than men in every industrial sector, but that during the 1990s, female incomes fell in a number of key sectors such as ‘business services’, ‘transport and communications’ and ‘distribution’.
14
Table 5:
Net weekly earnings of graduates aged 26-35 (full-time workers) by industrial sector [prices/year] Industry
Men
Women
1983-84 £
1991-92
2001
£
£
Primary, manufacturing, construction
266
364
392
Distribution
236
320
414
Transport and communications
337
454
381
Business services
290
376
516
Other services
257
318
352
All Industries
267
348
417
Primary, manufacturing, construction
219
275
323
Distribution
207
352
275
Transport and communications
119
428
366
Business services
203
356
346
Other services
218
289
303
All Industries
216
306
312
Source: General Household Survey, Briefing No.2.
Further evidence on these issues can be gleaned from the Labour Force Survey (See Sung and Ashton, Briefing No. 4). This evidence is based on the workforce over the age of 21 and compares 1993 and 2001. It is also based on the difference between graduate and non-graduate median gross incomes. This is presented as a ratio: a ratio of 1.79 means that graduate pay is 79 per cent more than that of non-graduates. Table 6 shows a small decline in the graduate premium consistent with our earlier findings. Again, it also highlights the complexity of the issues and the dangers associated with headline figures. The decline in the graduate premium is explained by the decline, in the differential for women, as male graduates experienced a minor increase in the differential over male nongraduates within the UK. It also shows that it is those in their thirties who have witnessed a significant decline, as the ratio for those under 30 and over 40 show little change. This table also shows considerable variation based on industrial sector and occupation. The median graduate in distribution, hotels and restaurants, and in ‘public administration, health and education, earn twice as much as nongraduates in the same industry, whereas it is around a half for those in transportation and communications. When we consider differences within occupational groups, the differentials are lower: managers and administrators earned 50 per cent more in 2001, although these figures also show that those
15
in ‘professional’ occupations and ‘associate professional and technical’ occupations where 10 and 14 per cent, respectively. Finally, what Table 6 also reveals is a change in the ratio between 1993 and 2001, where the minuses indicate a decline in the graduate premium. Sung and Ashton (Briefing No. 4) extend their analysis to consider sectoral and occupational differences within Wales. However, when the data are broken down in this way, the small number of cases inevitably raises questions of validity and reliability. Nevertheless, they found major differences in the graduate premium for males and females and those entering different industries and occupations in both Wales and the rest of the UK. In terms of changes over time, they also observe a general narrowing of the pay differentials between graduate and non-graduate employees over this period. However, there are some noticeable exceptions between Wales and the wider UK sample. In Wales, the decline in the differentials between graduates and nongraduates is more pronounced for those at the bottom of the labour market, especially among females and those in the 30-39 age range. It is the lower paid graduates among this group that have particularly lost out in relation to their non-graduate counterparts. Some of this may be a result of female graduates returning to the labour market at lower income levels after breaks for childrearing, but some of this change may also reflect a failure to find ‘traditional’ graduate employment.
16
Table 6:
Median weekly gross pay between degree holders and those without in the UK (21 years old or older) 1993 and 2001 Ratio
Ratio
Change in
1993
2001
Ratio
1.92
1.79
-0.13
Male
1.55
1.65
0.10
Female
2.31
2.10
-0.20
Less than 30 yrs old
1.44
1.43
-0.01
30 to 39 yrs old
1.81
1.71
-0.10
40 or older
2.08
2.10
0.02
Agriculture and fishing
2.23
1.96
-0.27
Energy and water
1.38
1.85
0.47
Manufacturing
1.71
1.67
-0.04
Construction
1.78
1.63
-0.15
Distri., hotels and restaurants
2.30
2.01
-0.30
Transport and communication
1.82
1.55
-0.27
Banking, finance and insurance
1.82
1.85
0.02
Pub. Admin., health and education
1.95
2.00
0.05
Other services
2.09
1.83
-0.27
Manager and administration
1.57
1.50
-0.07
Professional occupations
1.20
1.10
-0.10
Asso. prof and tech occupations
1.24
1.14
-0.09
Clerical, secretarial occupations
1.18
1.13
-0.04
Craft and related occupations
1.80
1.51
-0.28
Personal, protective occupations
0.68
1.27
0.59
Sales occupations
1.92
1.47
-0.45
Plant and machine operatives
1.04
1.36
0.33
Other occupations
0.98
0.89
-0.09
N
7,832
15,532
Whole sample Gender
Age
Industry sector
Occupation
Pay = gross weekly pay; * figures have been subject to rounding performed by Excel. The interpretation of the ratio: 1.92 means that graduates pay is 1.92 times more that that of nongraduates' pay.
Change in ratio: -0.13 means that the differential between the two groups has decreased by 13% during the intervening period.
17
3.5.
There are significant regional differences in graduate incomes
Evidence on graduate incomes in Wales, as opposed to other regions of the UK, is provided by the Graduate Market Trends Salary Survey - which again draws on the Labour Force Survey. This shows that median graduate incomes in Wales (£19,292) fall short of those in Scotland (£19,656) and significantly lag behind London (£25,012). The higher salaries paid in London and the South East lifts the overall average for the UK, and consequently exaggerates the differences in graduate earnings in England and Wales (Fevre, Briefing No.5). Table 7:
Earnings (£) of graduates in Wales over time compared with other regions
Region
Age 20-24
Age 25-29
30-34
Mean
Median
Wales
13,564
19,883
22,493
19,657
19,292
Scotland
15,524
20,005
28,646
22,548
19,656
London
20,052
28,838
37,710
30,646
25,012
All regions
16,170
22,573
29,807
24,235
21,474
Source: The Graduate Market Trends Salary Survey (GMTSS) spring 02, Tomlinson, Briefing No.7.
When income data are broken down by region, we find that graduate earnings for those aged 21-30 in Wales are comparable to some of the English regions including North East, Yorkshire and Humberside, East Midlands; and significantly higher than Northern Ireland (See Table 8). However, by the ages of 31-40, those in the comparable English regions had pulled ahead - leaving Wales below all the English regions, but still ahead of Northern Ireland.
18
Table 8:
Average weekly earnings (£) of full-time graduate employees by region of place of work, and age Age: 21-30
Age: 31-40
All degrees
All degrees
North East
374
601
North West
409
574
Yorkshire & Humberside
374
587
East Midlands
375
584
West Midlands
411
613
East of England
451
650
London
532
836
South East
464
697
South West
406
614
Wales
379
557
Scotland
404
599
Northern Ireland
352
511
Region
Workplace outside UK All regions
288* 445
670
*Weighted sample size less than 30,000; Source: Labour Force Survey 2002-03 Survey (as reported in Graduate Market Trends, Autumn 2003; Fevre, Briefing No.5)
None of these data take into account differences in the cost of living in Wales, as opposed to London or any of the other English regions (Fevre, Briefing No. 5). As reported in Graduate Market Trends (autumn, 2002), the Comparative Studies Unit (CSU) collected regional average salary data from the Prospects Today salary and vacancy survey and then used a cost of living index based on house prices to ‘rationalise’ graduate earnings. House prices were used because they represented a substantial slice of household spending and were a good indicator of localised inflation. In Briefing No.5, Fevre suggests that this is a rough and ready way to factor in the cost of living, and other earnings data might have been more reliable. But the attempt to make some allowance for the cost of living effect on the overall rankings has a dramatic effect. It is also worth noting that since 2002, house prices in Wales have continued to rise while they have slowed in other parts of the UK, especially London and the South East. Nevertheless, Wales was ranked nine out of 10 regions in the base data but three out of 10 when the cost of living was taken into account. London dropped to the bottom of the table.
19
Table 9:
'Real' graduate earnings by region Real earnings by region rationalised by cost of living index (£) (ranking)
Average House Prices (£)
Percentage Index difference from the base figure value (North)
Average earnings (£) (Ranking)
North
69,337
0
1.0
(5) 17,471
(1) 17,471
North West
78,394
13.06
1.021
(10)16,486
(6) 16,147
Yorkshire and Humberside
76,526
10.37
1.017
(3) 17,566
(2) 17,272
Wales
75,341
8.66
1.014
(9) 16,844
(3) 16,611
West Midlands
97,554
40.70
1.065
(6) 17,398
(4) 16,336
East Midlands
88,833
28.11
1.045
(8)16,917
(5) 16,189
East Anglia
113,781
64.10
1.103
(4) 17,500
(7) 15,866
South West
127,010
83.18
1.133
(7) 17,088
(9) 15,082
South East
157,284
126.84
1.203
(1) 18,549
(8) 15,419
Greater London
214,001
208.64
1.334
(2) 18,413
(10) 13,802
Source: Graduate Market Trends, Autumn 2002. Fevre, Briefing No.5
3.6.
Existing research evidence also shows that graduate earnings reflect a number of other factors, including the status of the university attended, the degree subject studied, and degree classification.
The empirical evidence shows that graduates from higher status or higher ranking institutions, those from vocational and/or numeric disciplines (e.g. Engineering or Mathematics) and those with a First - compared to a LowerSecond Class degree classification fare comparatively better in terms of their earnings, both on initial entry to the labour market and over time. Research evidence shows that some of the observed variation in graduate earnings reflects the status of the institution attended, whether it is an ‘old’ or ‘new’ (post-1992) university, or an institution’s ranking in published league tables. Of course, differences in earnings will not only reflect institutional status, but the ‘social mix’ of the students. High ranking universities typically have a larger proportion of students from privileged social backgrounds, with the personal, cultural and social capital valued by established graduate employers (see below). Lower ranked universities typically have more students from the ethnic minorities, and more mature students or distance learners, often studying on a part-time basis. Because students come from a variety of backgrounds and with a whole range of different experiences of work and the labour market, this will inevitably impact on their occupational and career decisions, along with their potential life-time earnings. Evidence continues to show that the large, blue
20
chip employers, who offer ‘fast track’ management training schemes and high starting salaries, still tend to target graduates from the more elite end of the HE spectrum. In other words, the opportunities that exist for different groups of graduates in the labour market are often highly conditioned by the status of the institution that they have attended. Chevalier and Conlon (2003) show that the financial returns associated with degree level qualifications vary substantially, according to the type of HEI attended. They find that even after controlling for academic achievement, subject of degree and family background, graduating from a Russell Group institution (compared with a Modern university) leads to an earnings premium ranging from 0 to 6 per cent for men and 2.5 per cent for women in the younger cohorts that they examined. It is important to note, however, that these researchers do not take into consideration regional or sectoral differences in the jobs undertaken by graduates - which are likely to account for large differences in their earnings. The Sunday Times’ ‘Good University Guide’ (2004) also shows that the 10 institutions with the worst starting salaries are also (with the exception of one Russell Group institution – Cardiff University in Wales) lower status universities. In fact, half of the institutions that appear in this list are Welsh HEIs. As Table 10 shows, the average starting salary for graduates from Aberystwyth University was just £12,968 in 2004. Even graduates from Cardiff University, the only Russell Group institution in Wales, obtained average starting salaries of £14,219 - less than the average starting salaries of graduates from the North East Wales Institute or Central Lancaster. Table 10:
Top ten worst graduate starting salaries by institution Institution
Starting Salary (£)
Aberystwyth
12,968
Chester
13,531
Bath Spa
13,613
Stirling
13,627
Lincoln
13,809
Swansea Institute
13,965
Bangor
14,103
Cardiff
14,219
Central Lancashire
14,327
North East Wales Institute
14,388
Source: HESA/The Sunday Times Good University Guide
The existing research evidence also shows clearly that the subject studied at degree level has a significant effect on graduate earnings. The general consensus is that graduates with Arts/Humanities or Social Science qualifications have relatively low earnings premiums relative to graduates
21
from other disciplines. Those with vocational or numeric degrees, on the other hand (e.g. engineering, business studies, mathematics), tend to fare comparatively well in the earnings stakes. Such differences in earnings are also related to the industrial sectors of the economy in which graduates from different degree disciplines tend to work. Even amongst those with the same high level credentials (Firsts), there are significant differences in the earnings of graduates from different degree disciplines, even after five years in the labour market, as shown in Table 11. Table 11:
Average annual income of respondents with Firsts by area of degree study (1997 cohort)
Arts / Natural Humanities Sciences
Social Sciences
Vocational
Maths/ Totals Computing
Count %
Count %
Count %
Count %
Count %
Count %
19
50
10
28
8
31
2
3
6
17
45
23
£20,000 - 14 £29,999
37
14
39
9
35
21
34
9
25
67
34
£30,000 - 2 £39,999
5
9
25
4
15
17
28
7
19
39
20
Over £40,000
3
8
3
8
5
19
21
35
14
39
46
23
Totals
38
100
36
100
26
100
61
100
36
100
197
100
Under £19,999
Source: Smetherham (2005)
This table shows that even after five years in the labour market, those with Arts/Humanities degrees fare comparatively worse in terms of earnings than those with ‘Vocational’ or ‘Maths and Computing’ degrees. Half of those with ‘Arts or Humanities’ degrees are still earning under £19,999 after five years in the labour market, compared to just three per cent of those from vocational courses. In contrast, 35 per cent of those with vocational qualifications are earning over £40,000 after five years compared to just eight per cent of ‘Arts or Humanities’ graduates. Such evidence points to significant differences in earnings, according to subject or area of degree level study. Walker and Zhu (2003) also found that individuals with Arts, Education, Languages or Social Science qualifications at HE level tended to have relatively low earnings premiums – if one exists at all. Those with Law, Economics, Business or Maths degrees, on the other hand, earned up to 25 per cent more than their equivalents with two or more A Levels. What graduates study is closely tied to gender. Young men and women continue to opt for degree subjects according to traditionally gendered patterns, so that women are more heavily concentrated in the Arts or Humanities disciplines than among the more quantitative or vocational subjects such as Engineering or Mathematics. This then impacts on earnings. Consistent with other findings presented in this report, Purcell (2002) shows
22
that women earn less on average than their male counterparts, irrespective of the subject in which they specialise. Indeed, for all 12 degree subjects analysed, male graduates had higher average earnings than their female counterparts three years after graduation. The difference between the earnings of comparable samples of men and women was widest (in terms of actually earnings, as well as in percentage terms) for Law and Mathematics and Computing graduates and narrowest for Education graduates. Figure 8:
Average Earnings of Graduates by Degree Subject
Source: Purcell, 2002 fig. 2
Before turning our attention to the relationship between degree classification and earnings, it is worth noting that there is little evidence to support the claim that students will follow ‘market signals’ as an indicator of what to study. Table 12 is based on the number of students enrolled in different subject areas. This shows that students have not been deterred from studying the Arts, Humanities, Education or Social Sciences, but, surprisingly, given much of the rhetoric about a knowledge-driven economy, the overall numbers in Engineering and Technology and Physical Sciences has declined since the mid-1990s (although part-time enrolments have increased).
23
Table 12:
Table of HE subjects and differences over time (UK) Total HE entrants 1996/97
Total HE entrants 2002/3
Total
FT
PT
Total
FT
PT
Difference Over time
Medicine and Dentistry
40476
27707
117
48915
33345
155
+ 8439
Subjects relating to medicine
153105
82306
53207
266415
130960
10092 5
+ 113310
Biological sciences
81750
59853
4477
125860
92340
8215
+44110
Veterinary sciences
3301
2487
19
3840
3165
40
+539
Agriculture and related subjects
15226
11327
779
14980
9485
1795
-246
Physical sciences
74496
51031
4638
71040
47510
6335
-3456
Mathematical sciences
19908
15528
393
26190
19470
1135
+6282
Computer sciences
73612
49417
11188
134035
85535
9970
+60423
Engineering and technology
134041
90930
14835
131575
76855
18185
-2466
Architecture, building and planning
46545
27059
8248
45830
21600
11510
-715
Social studies
129328
77666
18017
168920
94310
36950
+39592
Law
54767
34281
7396
77680
44435
9430
+22913
Business and administrative studies
222321
119241
39671
284550
148160
41950
+62229
Mass Communic. and documentations
20004
12933
1892
42175
30135
3095
+22171
Languages
91214
61514
16678
130225
77735
36050
+39011
Historical and philosophical studies
60656
33594
13590
87630
46935
23725
+26974
Creative arts and design
87170
71460
6727
132675
104620
14010
+45505
Education
136888
51296
18359
169800
35020
43570
+32912
311371
118031
174715
212785
9700
18628 0
-98586
Subject of study
Combined Total
1756179
2175115
+418936
Source: Higher Education Statistical Agency (HESA)
In terms of degree classification, research has also shown significant differences in the earnings of those with different levels of credential. Higher degree classifications carry a premium over lower degree classifications. Research has shown that after five years in the labour market (looking at 1997 graduates surveyed in 2002), the earnings of those with Firsts and 2.2s are significantly different, as shown in Table 13 below.
24
Table 13:
Average annual income of respondents by degree classification (1997 cohort) st
1
2.2
Totals
Count
%
Count
%
Count
%
Under £19,999
47
23
43
30
90
26
£20,000 - £29,999
71
35
67
47
138
40
£30,000 - £39,999
41
20
24
17
65
18
Over £40,000
46
22
9
6
55
16
Totals
205
100
143
100
348
100
Source: Smetherham, 2005
Research also shows that this premium is greater for men than for women, and that the gap between the earnings of men and women with the same credentials widens with increasing levels of achievement. In other words, the gender gap between the average earnings of female and male graduates with equivalent degree classifications is largest for those with Firsts; narrows slightly between men and women with 2.1s; decreases further when looking at men and women with 2.2s; and is smallest between those with Third Class degrees.22 These findings are supported by Smetherham’s (2005) findings that also reveal significant differences between the earnings of men and women with the same First Class degrees after five years in the labour market. Table 14 shows that over twice as many female graduates were earning under £20,000, while half of the male graduates were earning over £30,000, compared to a third of the women. Table 14:
Average annual income of respondents with firsts by gender (1997 cohort) Male
Female
Totals
Count
%
Count
%
Count
%
Under £19,999
18
15
28
32
46
23
£20,000 - £29,999
40
35
30
35
70
34
£30,000 - £39,999
27
23
14
16
41
20
Over £40,000
31
27
15
17
46
23
Totals
116
100
87
100
203
100
Source: Smetherham (2005)
25
Flat rates of tuition fee operate on the assumption that rates of return to graduates will somehow be standardised evenly across the graduate population. But the existing research evidence shows that rates of return are dependent on each of the factors considered above (institution attended, subject studied and degree classification), as well as the complex interrelationships between them, thus rendering highly problematic any assumption of a ‘standard’ or ‘average’ graduate premium or rate of return. 3.7.
Major gender differences remain in areas of specialist knowledge, industrial sector, occupation and income
Reported differences in the rates of returns for male and female graduates warrant further investigation, given that debates around tuition fees have also largely ignored the importance of gender. All of the recent published studies on the relative earnings of male and female graduates have consistently shown a large and significant discrepancy in earnings between men and women, despite improvement in women’s achievement at degree level and some advances in accessing professional jobs within the labour market. Young women today are equally as likely to enter HE and have exceeded average male performance and achievement at undergraduate level. Women now comprise over half of the undergraduate student population and for the first time, in 2001, more women than men gained First Class degrees (See Smetherham, Briefing No.3). Despite this improvement in female academic performance at degree level, further research by Purcell shows that income differences between men and women remain important. This research shows that average male graduate earnings were approximately 15 per cent higher than those for women, graduates under 30 years of age, but these income inequalities rise to over 40 per cent from the age of 45.23 Table 15:
Average annual earnings of graduates, 1999-2000 Males (£)
Females (£)
% by which average male earnings exceeded those of females
20-24
16,738
14,592
14.7
24-29
23,302
20,154
15.6
30-34
30,448
24,939
22.1
35-39
36,948
27,774
33.2
40-44
36,949
26,691
38.4
45-49
36,696
26,113
40.5
50-54
38,153
26,549
43.7
All ages under 60
32,555
23,630
37.8
Source: Labour Force Survey, September 1999 – August 2000 (pooled data), Purcell (2002)
26
Whether these differentials will narrow as more women enter professional and managerial occupations is open to debate, but Purcell’s research found that for graduates under 40 years of age, there were more female graduates in the professions than men, and only a slightly higher proportion of men employed as Managers and Administrators. Figure 9:
The occupational distribution of graduates
Source: Purcell, 2002 fig. 7
This does not tell us anything about the levels of seniority held by women and men in these occupations, which led Purcell to examine the relationship between occupation and subject studied at university. The occupational distribution of graduates by their disciplinary background show some important differences between men and women graduates with degrees in Languages, Engineering and Business Studies (See Table 16). Table 16:
Occupational distribution of graduates by disciplinary background
Major occupational category of current employment
Subject of degree Languages
Engineering
Business Studies
Males
Females
Males
Females
Males
Females
Managers and administrators
31.6
29.8
23.3
17.9
38.7
48.3
Professional
34.5
27.0
43.0
37.4
18.7
13.5
Associate Professional
15.3
13.8
17.8
18.5
18.7
11.8
Non-manual / clerical
16.1
20.6
3.8
7.9
14.6
16.7
Manual / routine operative
2.5
8.8
12.1
18.3
9.3
9.7
All (100%)
478
1,446
4,715
519
2,913
2,261
Sample: Full-time employed 1995 graduates aged under 40 in winter 1998-99 Source: Moving On dataset, Purcell, 2002 Table 3
27
In all but the Business Studies sub-sample, male graduates were more likely than their female counterparts to be managers and administrators or in professional occupations (i.e. in the highest paid and highest status occupational categories). What is more, in all of the categories, over a quarter of female graduates were in non-manual/clerical or manual/routine operative jobs (i.e. ‘non-graduate’ jobs). The research evidence also shows that female graduates are also concentrated in a small number of industrial sectors and more likely to work in the public sector, rather than private sector.24 Table 17:
Distribution of employment of graduates by major economic sector.
Sector of Employment
Males
Females
Public
23.5
43.8
Private
74.6
51.9
Voluntary
1.9
4.3
Total weighted sample (n = 100%)
25,557
24,084
Sample: Full-time employed 1995 graduates aged under 40 in 1998-99 Source: Purcell, 2002, Moving On dataset. Smetherham, Briefing No.3
This table shows that nearly half of the female under 40s in the 1995 cohort worked in either the public or voluntary sectors, whereas men were substantially more likely than women to be employed in the private sector. Three quarters of men were employed in the private sector, compared to approximately half of the female graduates. But close to twice the number of females worked in the public sector (23.5% and 43.8% respectively). Purcell also notes that women in the public and voluntary sectors were more likely than men to have been employed on permanent or open-ended -as opposed to fixed-term - contracts.
28
Figure 10:
Distribution of graduates by industry sector
[Source: Purcell, 2002 fig. 5]
The existing research evidence also highlights very different distributions in terms of gender by industry sector. These data show that the employment of female graduates is far more concentrated than that of their male peers, with men more likely to be employed in the primary and secondary sectors of the economy and women in the service sector (as in the labour market as a whole). Female graduates are most likely to be employed in Public Services, Education and Business Services, which together account for roughly 70 per cent of the female graduates surveyed. The existing research data all show clearly that gender continues to constitute a key variable in terms not only of income, but also in terms of industrial sector and occupation. Furthermore, this is the case despite overall equalisation in female and male academic performance at degree level. This analysis also shows that the labour market that graduates enter is not characterised by a hierarchy of jobs that correspond to a hierarchy of academic achievement. It points to enduring questions of ‘positional’ advantage based on gender as well as academic performance. This picture is further complicated by issues of social class, race and ethnicity. 3.8
Class and ethnic inequalities also continue to be a feature of educational and labour market outcomes
The DfES Future of Higher Education White Paper states that: ‘The social class gap among those entering higher education is unacceptably wide. Those from the top three social classes are almost three times as likely to enter higher education as those from the bottom three.’25 29
Figure 11 below, which is cited in the ‘Future of Higher Education’ White Paper, shows that the working classes have not benefited from the expansion of HE to the same extent as the middle classes. The higher education entry gap between the top and bottom three social classes has - in fact - widened over time, and the differences between young people from professional and unskilled backgrounds is even more pronounced. Young people from professional backgrounds are over five times more likely to enter higher education than their counterparts from unskilled backgrounds. Figure 11:
Higher education entrants by social class groups (1960– 2000)
Moreover, class difference in access to higher education continues to matter within the job market. A recent report by the Institute of Employment Studies (Pollard, Pearson et al. 2004) suggests that students from families with no experience of university fare least well after graduating. These researchers drew on the experiences of 1,500 young people who applied to enter HE in 1998, the first year of tuition fees, and who were surveyed for a third time in 2003 two years after graduating. According to Pollard et al’s (2004) report, many graduates were surprised at how difficult it was to find work, and a substantial minority went into temporary or low-quality jobs. Although for some this was for ‘breathing space’, or to start to pay off debt, for others it was due to ‘a lack of viable alternatives’. Those earning the higher salaries - in what they perceived to be good quality jobs - tended to be male, from higher socio-economic groups, and from families with higher incomes. Those in poor quality jobs tended to be from ‘non-traditional’ backgrounds – poorer homes or areas – and to have done less well at university. The report states that “those who moved to study and work were the most likely to find ‘good’ jobs; those who returned to their home
30
region to look for work had a particularly difficult time”. They argue that this in turn reinforces the deprivation trap, because increasingly youngsters are tending to study at their ‘local’ university and live at or near the family home to save money: ‘Costs were a significant issue for many’. They found that the average graduate debt of the graduates they surveyed was almost £10,000 – with those on low family incomes and who studied away from home having the highest debt.26 The participation of ethnic minority groups in HE varies considerably, with some having a higher participation rates than for white students. But despite these high participation rates, ethnic minority students do not ‘on average’ perform as well at degree level as white students (Connor, 2004). Ethnic minority groups also fare less well in the labour market. In terms of their initial destinations, First Destination Survey (FDS) data show that initial employment outcomes are poorer overall for ethnic minority groups (in aggregate) than for white graduates. However, this disguises differences between ethnic minority groups. This applies to differences within each ethnic minority group, but there is also variation between ethnic minority groups. In addition, outcomes are further influenced and complicated by characteristics such as social class and gender. Ethnic minority graduates were both more likely to have enrolled for further study or training and to be unemployed six months after graduation when compared to their white counterparts. Table 18 shows the higher initial unemployment rates for full-time degree students from all minority ethnic groups. The ethnic minority average was just over 11 per cent compared to nearly half that, just over six per cent, for white graduates.27 The unemployment rate for the ‘mixed ethnic’ category was 8.3 per cent compared to 13.9 per cent for Pakistanis.
31
Total number
Not available for employment or training
Other
Unemployed
Study or training
UK self-employed
Overseas work
First destinations of full-time degree (home domiciled) graduates from English universities, 2001/02 (percentages are based on known destinations)
UK paid work
Table 18:
White
63.4
2.2
1.6
17.4
6.1
2.8
6.5
118,069
All minority ethnic groups
55.3
1.0
1.1
22.4
11.1
4.2
5.1
19,851
Black Caribbean
63.8
0.4
1.3
14.3
9.8
4.8
5.7
1,200
Black African
54.3
0.4
1.2
21.6
12.2
5.9
4.4
1,950
Black Other
60.1
1.5
1.5
17.4
10.8
3.3
5.4
666
Indian
58.9
0.5
0.7
22.5
10.2
3.3
3.9
6,762
Pakistani
51.5
0.4
1.4
24.0
13.9
3.8
5.1
2,722
Bangladeshi
53.0
0.2
0.6
23.2
12.4
4.4
6.1
862
Chinese
47.7
2.8
1.1
26.7
11.6
5.1
5.1
1,485
Asian Other
52.7
1.2
1.5
23.9
9.7
4.8
6.1
1,631
Mixed ethnic
46.7
2.9
2.9
26.4
8.3
5.4
7.4
242
Other
52.6
2.3
1.7
21.6
10.3
4.4
7.1
2,331
All (known ethnicity)
62.2
2.0
1.5
18.1
6.9
3.0
6.3
137,920
Source: HESA (FDS), taken from Connor et al. (2004) p.89, Table 7.1
3.9.
There is evidence of graduate ‘over-qualification’ but little agreement about how to measure it
A number of studies have found that approximately 30 per cent of graduates are ‘over-qualified’ in terms of what is required to fulfil their current employment. Several different studies have found that a substantial minority of graduates are over-educated and/or their skills are under-utilised in their jobs, particularly during the first few years after graduation (Belfield, Bullock et al., 1997; Battu, Belfield et al., 2000; Dolton and Vignoles, 2000; Smetherham, 2005). The likelihood of being over-educated or under-utilised does appear to decline over the first few years after graduation, as some graduates manage to secure graduate-level employment after first accepting a period of lower-level employment (Connor, La Valle et al. 1997; Elias and McKnight 1999). Nonetheless, the initial period of over-education or under-utilisation may have lingering negative effects on future salary and career prospects (Green, McIntosh et al. 2002). 32
Indeed, Green et al. (2000) argue that an estimated 30 per cent of UK graduates have more education than their job requires six years after graduating. Sloane et al. (1999) also found that 40 per cent of graduates were over-educated six years after graduating, using survey data from the University of Birmingham. Purcell and Elias are also reported as stating that one third of the 1995 cohort of graduates that they surveyed in 2002 felt that a degree was not required for their job.28 Smetherham (2005) shows that after five years in the labour market, looking at a 1997 cohort of graduates - those with Firsts were significantly more likely to be in a job for which a degree was a formal entry requirement, compared to those with 2.2s, although even a large minority of those with Firsts remained in jobs for which a degree was not a formal entry requirement. Nearly half of all respondents with 2.2s, after five years in the labour market, were in a job for which a degree was not a formal entry requirement (although the cell sizes are relatively small). Table 19:
Whether a degree was a formal entry requirement for respondent’s current job by degree class (1997 cohort) st
1
2:2
Total
Count
Col %
Count
Col %
Count
Col %
A degree was a formal entry requirement
150
75.4
72
51.4
222
65.5
A degree was not a formal entry requirement
47
23.6
60
42.9
107
31.6
Don't know / not sure
2
1.0
8
5.7
10
2.9
Total
199
100
140
100
339
100
Source: Smetherham, Briefing No.3
The evidence on whether over-qualification for graduates has increased over time is open to different and often conflicting interpretations. However, most agree that there may have been a modest increase over the last few years on the broad definition of over-qualification, namely whether graduates are working in jobs for which a degree is a formal entry requirement. Research by Mason (2002) shows that in retailing, the proportion of graduates in clerical, sales and other occupations below associate professional level rose from 22 per cent to 37 per cent between 1988 and 1998, according to estimates based on LFS data. In transport and communications, the proportion of graduates classified to occupations below associate professional level in 1998 was one in three, up from 26 per cent 10 years earlier. In Briefing No.2 Lauder and his colleagues discuss some of the different definitions of what constitutes graduate work. For example, one way of defining graduate work is to ask graduates whether they feel that they are
33
utilising the knowledge and skills commensurate with their degree studies. Most of the research in this area has adopted such an approach. Another is when employers are asked whether they have recruited graduates to undertake graduate level work, or whether they have employed them for other reasons such as their social confidence, reliability or punctuality. Smetherham also discusses some of the different methodologies used for examining graduate over-qualification (see Briefing No.3). 3.10. Claims that half of those entering the workforce will require higher education to meet the requirements of the ‘knowledge’ economy have little empirical support on either side of the Atlantic. There is also little evidence to support the view that Wales is a vibrant knowledge-driven economy.
In the White Paper, The Future of Higher Education, it is asserted that the ‘demand for graduates is very strong’. This is supported by research evidence purported to show that 80 per cent of the 1.7 million new jobs which are expected to be created by the end of the decade will be in occupations which normally recruit those with higher education qualifications.29 These figures are based on UK occupational data analysed by Wilson and colleagues.30 However, as Hesketh shows in Briefing No.1, it is not at all clear that the Government’s claim of 80 per cent of the 1.7 million jobs created between 2000-2010 is even supported by Wilson’s analysis. Far from supporting the Government’s interpretation of their data, Wilson and his team presented a note of caution: ‘[I]t seems likely that many more highly qualified individuals will have to find jobs outside the ‘traditional’ areas of graduate employment, many of which are now approaching saturation point in terms of graduate penetration rates. This may often be at the expense of less well qualified people, who may be displaced into less attractive jobs.31 On closer examination, of the 2 million of so extra new jobs expected to be created, only 900,000 - or just over four in every 10 - are expected to be located in professional occupations, the traditional destinations of graduates. It is important to note that projecting occupational demand over a five or ten year period is as much of an art as a science. Given these uncertainties, Wilson and his colleagues present different scenarios in relation to the future demand for higher-level qualification (NVQ 4 and 5) (See Hesketh, Briefing No. 1). The Department of Education and Skills assumes that the demand for graduates will remain in balance with expected supply, whereas what is called the fixed-penetration scenario alternatively assumes that the proportion qualified in each occupation will remain fixed at 1999 levels.32 If the fixedpenetration scenario became a reality, we would expect to experience increasing problems of over-education as the labour market fails to absorb growing number of university graduates.
34
Based on Wilson’s analysis, Table 20 shows the projected increase in demand for employees by level of education. The predicted increase in demand for those requiring NVQ4 (32.4%) and NVQ5 (30.8%) look superficially impressive. But when these increases are presented as a share of all UK jobs in 1999, NVQ4 and 5 combined represented around a quarter of the workforce, rising to little under a third (31.8%) in 2010. Table 20:
Percentage increases and percentage shares of economy compared 1999
2010 (000s)
Change in Jobs 19992010 (000s)
% Change in Jobs19992010
% Share UK Jobs 1999
% Share UK Jobs 2010
(000s) Higher degrees (NVQ5)
1237
1618
381
30.8
4.5
5.5
First degree and equivalent (NVQ4)
5862
7809
1900
32.4
21.2
26.3
A level and equivalent (NVQ3)
5101
5377
276
5.4
18.5
18.1
GCSE Grades A-C (NVQ2)
6173
6120
-53
-0.9
22.4
20.6
GCSE Below Grade C (NVQ1)
5780
6254
474
8.2
21
21
No Qualification
3389
2494
-895
-26.4
12.4
8.4
Total
27546
29673
2127
7.7
100
100
Source: Extrapolated from Wilson, 2001, Table 5.11: 76. Hesketh, Briefing No. 1
Other evidence also points to the danger of assuming that there is a linear increase in the demand for graduates. Figure 12 presents evidence from the Association of Graduate Recruiters (AGR), which represents around 400 of Britain’s leading graduate employers. The figures show considerable fluctuations in the demand for graduates. It also shows that these ‘elite’ employers recruited approximately 25,000 graduates in 1997/8 but failed to match this in any subsequent year.
35
30,000
20
25,000
10
20,000
0
15,000
-10
10,000
-20
5,000
-30
0
% change on previous year
No of vacancies
Figure 12: Blue chip graduate vacancies in the UK 1997-2003
-40 1997/98
1998/99
1999/2000 Total Vacancies
2000/01
2001/02
2002/03
% increase/decrease
Data extrapolated from AGR Graduate Recruitment Surveys 1997-2003.
The relatively small proportion of graduates recruited to large blue chip employers at a time when over 300,000 graduates enter the labour market each year, raises key questions about the demand for professional, managerial and higher-level technical skills. In order to obtain a longer term view of changes in the occupational structure of men and women in employment, Elias and Purcell use information from the New Earnings Survey, a survey that has remained relatively unchanged since 1975.33 The results of their analysis are shown below, first for male employees and second for female employees. Elias and Purcell utilise five different categories of graduate job: ‘non-graduate’ jobs, ‘niche’ graduate jobs, ‘new’ graduate jobs, ‘modern’ graduate jobs and ‘traditional’ graduate jobs. A more detailed discussion of these categories and their construction can be found in Smetherham, Briefing No.3.
36
Figure 13:
Changing occupational structure of male employees in employment, 1975 to 2000 by SOC (HE)
Non-graduate job
40 35
Niche graduate job
30
%
25
New graduate job
20 15
Modern graduate job
10 5
Traditional graduate job
19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99
0
Source: new Earnings Survey Panel Dataset, 1975 - 2000
Figure 14:
Changing occupational structure of female employees in employment, 1975 to 2000 by SOC (HE)
40 35
Non-graduate job
30
Niche graduate job
%
25 20 15
New graduate job Modern graduate job
10 5
Traditional graduate job
19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99
0
Source: New Earnings Survey Panel Dataset, 1975 – 200; Elias and Purcell, 2004: 34
37
These figures show how the occupational structure of employment (specifically, employees in employment) has changed over this 25-year period. Both the ‘new’ and ‘modern’ graduate categories have shown significant growth, as indicated by the rising proportion of both male and female employment classified to these categories. Although using such general definitions as ‘modern’ and ‘new’ graduate jobs is problematic because it is not always clear whether these are really ‘graduate’ jobs, these figures show that the proportion of employment in the traditional graduate job category has remained virtually constant throughout the period considered. Despite such issues, much of the policy debate has focussed on issues of supply, including concerns about whether graduates have the employability skills that employers are looking for. If the demand for highly skilled workers is consistent with the supply then there is little reason for concern, as the expansion of education could be seen to mirror the technological upgrading of the workforce. The problem for the proponents of the knowledge economy is that the evidence fails to support the argument that today’s economy requires a significant, let alone exponential, increase in demand for high skilled workers. Table 21:
Employment by education and training category, 2000-2010. (Monthly Labour Review)35
Most significant source of education or training
Number
Percent distribution
2000
2010
2000
2010
Total, all occupations (thousands)
145,954
167,754
100,0
100,0
Bachelor's or higher
30,072
36,556
20,7
21,8
First professional degree
2,034
2,404
1,4
1,4
Doctoral degree
1,492
1,845
1,0
1,1
Master's degree
1,426
1,759
1,0
1,0
Bachelor's or higher degree, plus work experience
7,319
8,741
5,0
5,2
Bachelor's degree
17,801
21,807
12,2
13,0
Associate degree or postsecondary vocational award 11,761
14,600
8,1
8,7
Associate degree
5,083
6,710
3,5
4,0
Postsecondary vocational award
6,678
7,891
4,6
4,7
Work related training
103,760
116,597
71,3
69,5
Work experience in a related occupation
10,456
11,559
7,2
6,9
Long term on-the-job training
12,435
13,373
8,5
8,0
Moderate term on-the-job training
27,671
30,794
19,0
18,4
Short term on-the-job training
53,198
60,871
36,5
36,3
Source: Daniel E. Hecker, Employment Outlook: 2000-10 Occupational employment projections to 2010 Monthly labour Review November 2001 p.83
38
Evidence from the United States - seen by many commentators as the archetypal ‘knowledge’ economy - shows that although many of the jobs with the fastest rate of growth in the American economy require a college or university degree, most Americans will continue to work in occupations that require low levels of education and training. Table 21 shows that the proportion of the workforce requiring a bachelor’s degree or higher is expected to rise by just over one percentage point between 2000 and 2010. This amounts to around one in five of all jobs, whereas the majority of the workforce will remain engaged in activities that require only work-related training. Indeed, there will continue to be a buoyant demand for large number of workers in jobs requiring little training. These jobs will continue to account for over half the American workforce. In Briefing No.1, Hesketh presents a new analysis of the demand for ‘knowledge’ workers, based on what employees actually do rather than the qualifications held by employees or what is required to get a particular job.36 This analysis is based on categories originally formulated by Robert Reich (1991). The category of ‘knowledge workers’ (Reich called ‘symbolic analysts’), include corporate managers and administrators; managers/proprietors in agriculture and services; science and engineering professionals; teaching professionals; health professionals; other professional occupations; science and engineering associate professionals; health associate professionals; and other associate professional occupations.37 The category of knowledge workers is distinct from in-person service workers that include secretarial occupations; personal service occupations; buyers, brokers and sales representatives; other sales occupations; and also from routine production workers that include clerical occupations; skilled construction trades; skilled engineering trades; protective service occupations; industrial plant and machine operators and assemblers; drivers and mobile machine operators; other occupations in agriculture, forestry and fishing; and other elementary occupations. This analysis shows a significant increase in knowledge-intensive jobs in the 1980s and 1990s. From approximately 20 per cent of the workforce in 1971 to 28 per cent by the beginning of the 21st century, but there is little evidence of a further increase to 2010.
39
Figure 15: Job Classifications – all UK Jobs 1971-2010
70\ 60\ % 50\ All UK 40 Jobs 30 20 10 0 1971
1981
1991
1999
KW
IP
2005
2010
RP
Source: Hesketh, Briefing No.1
The question of the future demand for knowledge workers led Hesketh to consider the internal rates of increase/decrease for each of the three categories of workers and for the UK economy as a whole. Figure 16 shows that during the 1980s, the internal rates of increase for knowledge workers where four times that of the growth in the total number of jobs in the UK economy. However, this rate of change is not maintained in the 1990s and there is little expectation of a further acceleration in the demand for knowledge workers in the near future. Figure 16:
Percentage changes within categories between periods
30 27 25
25 20 15
19 18 16 12.5
10 6
5 0
7 4
2.2 0.2
1971-81
-5
6
-3.6
1981-1991
1991-99 -4
-5
-1.6
1999-2005
11 6 4 -1
2005-2010
-10
KW
IP
RP
UK Economy
Source: Hesketh, Briefing No.1
40
Turning to the labour market in Wales, Hesketh’s analysis shows that the expansion in the total number of jobs has failed to match the UK as a whole (seven per cent in Wales, compared to 13 per cent for the UK) between 19711999. Based on the same threefold classification of knowledge workers, inperson services and routine producers, Figure 17 shows the composition of the labour force in Wales. This shows that the increase in knowledge workers as a proportion of the Welsh economy has expanded, but not at the rate experienced in the UK. There are now some 288,387 knowledge workers in Wales, as opposed to below 200,000 in 1971. This compares with a shift in the total number of jobs during the same period from 1 million to 1.2 million. This analysis suggests that knowledge workers will account for approximately one in four of the Welsh workforce at least until 2010. Figure 17: Job classifications – all jobs 1971-2010 (Wales)
80
% all jobs in Wales
70 60 50 40 30 20 10 0 1971
1981
1991 KW
1999 IP
2005
2010
RP
Source: Hesketh, Briefing No.1
Such findings inevitably raise questions about the rhetoric of the knowledge economy both in Wales and beyond. But what is often absent in discussions of employment demand is the role of the public, rather than the private sector. There is an assumption that it is the demand for knowledge and skills in the private sector that is driving the demand for university graduates. The reality is that the public sector has been a crucial source of job creation within Britain since the turn of the century. Stephen Hicks and his colleagues (2005) have undertaken a detailed analysis of public sector employment that shows within the UK, it accounts for one in five of all jobs. However, between 200104 there was an overall increase of 368,000 additional jobs created in the public sector in the UK, compared to just 226,000 in the private sector. The importance of recent investment in public sector employment is shown in Figure 18. 41
Figure 18:
Annual employment increase: head count
3 2.5
Per cent
2 1.5 1 0.5 0 2000
2001
2002 Public
2003
2004
State
Source: Annual Employment Increase: Head Count, from S.Hicks et al. Public Sector Employment (2005). www.statistics.gov.uk/cci/article.asp?id=1095
The public sector has not only been important in terms of the volume of jobs that have been created, but also in terms of the quality of employment. This is obviously important in the context of graduate employment, as many of these new public sector jobs have been in the health service and education, which typically demand higher levels of skills and better access to training than offered by private companies within the service sector. Indeed, one of the most striking features of the Welsh labour market for graduates is the extensive role of the public, rather than the private sector, when compared to other regions of the UK. Wales is the only region where there are a higher percentage of graduate employees in the public sector (51 per cent) than in the private sector (49 per cent). In Wales, the percentage of graduates in the private sector is approximately 18 percentage points below the regional average (67.1%), and almost 28 percentage points below London (See Tomlinson: Briefing No. 7).
42
Table 22:
Distribution of full-time graduate employees in the private and public sectors in each region by place of work
Region
Private %
Public %
Wales
49
51
North West
61.5
38.5
Scotland
62.8
37.2
London
76.8
23.2
All regions
67.1
32.9
Source: Labour Force Survey (spring 03), Tomlinson Briefing No.7
In London, less than a quarter of graduates were in the public sector in 2003. This suggests that there is a huge gap between the rhetoric and the realities of the knowledge economy in Wales, as the demand for higher skills is being driven as much by employment in the public services as the private sector, which is suppose to be driving business enterprise and innovation. Indeed, the number of self-employed in Wales fell by 28,000 in the year ending June 2004, but at the same time the number of graduate business start-ups have increased.38 Therefore, as Fevre points out in Briefing No.5, the top graduate jobs in Wales (and the jobs in which graduates are most in demand), are less likely to be in blue chip companies and more likely to be in public administration, health and education. Because the private sector is smaller in Wales, graduate managers and senior officials - along with graduates in associate professional and technical occupations - have less of a presence. Forecasters at the Institute for Employment Research, University of Warwick, think it unlikely that Wales will catch up to the UK average for these occupational groups by 2012. One of the major reasons is the lack of a financial centre and company headquarters. A survey by Coombes, Page and Wilson (2003) for HEFCW, also reported by Fevre, illustrates the importance of the public sector to graduates who want to work in Wales. More than one in three of this group were teachers, as opposed to 18 per cent for those in graduate jobs outside Wales. According to the Institute for Employment Research, this pattern will continue for at least another decade. The largest gains in new graduate jobs are expected for teaching and research professionals, with jobs for health professionals also increasing (rates of growth are forecast to be above the UK average for both groups). Slower rates of employment growth than the UK average are expected in private sector graduate jobs for science and technology professionals and business professionals. Amongst associate professionals, health associate professionals are forecast to have a growth rate similar to the UK average and, of course, many of these will be employed in the public sector.
43
3.11.
There is little agreement about the extent or nature of skill gaps in Wales
The Future Skills Wales (FSW, 2003) is based on information gathered from more than 6,000 individuals and 6,000 organisations across Wales between February and July 2003. 39 FSW includes data on skills gaps - the difference between the skills employees have and those employers require them to have to undertake their jobs - and compares skill gaps and shortages in Wales with other parts of the UK. According to the findings of the FSW, 19 per cent of employers in Wales reported skill gaps. This figure is higher than in Scotland (16%) and Northern Ireland (13%) but below that in England (23%). Of those employers reporting skill gaps, the most common problem cited was lack of IT skills, followed by communication skills. Nearly half of all Welsh employers recruiting school and college leavers report a significant skills gap between the skills school and college leavers have, and those that employers need. The skills perceived to be lacking include communication, initiative, numeracy, literacy and understanding customer needs. The existence of skills gaps amongst graduates is less evident than that for school and college leavers, with a third of employers recruiting graduates reporting gaps, particularly in communication, initiative, work experience and business awareness. The proportion of employers reporting skill gaps rises as organisation size increases, and the highest proportion of employers reporting skill gaps are found in manufacturing, followed by public administration, education and health, together with banking, finance and other services. Interestingly, when employees are surveyed rather than employers, some employees report having higher levels of skills than employers require. Some of these are in the same sectors where employers perceive deficiencies in workplace skills. Moreover, for skills including communication, problem solving and showing initiative, individuals give themselves a rating above the level employers report currently requiring. Employers meanwhile report gaps in the skills of the current workforce in these very skills! This may indicate a degree of overestimation of abilities and/or under-utilisation of available skills. It also highlights methodological problems associated with the definition of skill gaps and shortages. While Future Skills Wales presents a buoyant picture of graduate demand in Wales,40 Felstead presents a pessimistic picture of skill demand in the Principality (Briefing No.6). Table 23 shows the difference between the number of jobs requiring qualifications at various levels and the number of economically active individuals holding qualifications at each of these levels.41
44
Table 23:
Qualifications demand and supply, Wales, 2001 Demand
Supply
Highest Qualification Required
1
Highest Qualification Held
2
‘000s of jobs
(% of existing jobs)
‘000s of people
(% of economically active individuals)
NVQ Level 4 or above
273
24.7
326
28.0
Degree
107
9.7
185
15.9
Non-degree
166
15.0
141
12.1
NVQ Level 3
228
20.6
261
22.4
NVQ Level 2
146
13.2
262
22.5
NVQ Level 1
86
7.8
144
12.4
No qualifications
374
33.8
170
14.6
Source: 2001 Skills Survey, own calculations, Felstead, Briefing No.6.
This shows that there are more people qualified at NVQ Level 4 (28%) than there are jobs demanding that level of certification (24.7%). According to Felstead’s calculations, this amounts to a surplus of approximately 53,000 students. This mismatch is mainly due to the difference between supply (15.9%) and demand (9.7%) at the level of bachelor’s degree, rather that at the sub-degree level (that is also included at level 4). Even more disturbing is the ‘skills gap’ at the bottom end of the labour market, which suggests that over a third of jobs in Wales require no formal qualification, at the same time that the vast majority of the workforce are qualified to at least NVQ Level 1. There are at least two methodological issues raised by Felstead’s analysis. Firstly, the demand for skills is not based on employer accounts but on the highest qualification that employees perceived to be required to get the respondent’s job at the time of interview. Secondly, it highlights the problem of finding a representative sample at the region level, rather than for Britain as a whole. The 2001 Skills Survey contains data on 4,470 individuals, but the Welsh data is based on only 224 respondents, which is why Felstead makes it clear that the data must be ‘treated with some caution’ (Briefing No.6). When the evidence for Wales is compared to Britain as a whole, there are some striking similarities as well as differences. Table 24 shows the nature of qualification mismatch by taking the percentage of jobs where a specific level of qualification is required, minus the percentage of the workforce qualified at each level. Therefore, a positive figure indicates excess demand, while a negative figure indicates over-supply. The most surprising finding in both Wales and Britain is the mismatch at the bottom end of the labour market. The problem of ‘over-qualification is not restricted to the market for graduates, as there appear to be many jobs that require no formal qualifications (+19.2 percentage points in Wales and +15.2 in Britain). The problem of overqualification appears to be less of a problem at Level 4 in Britain, although it is a problem within the Principality, as noted above. Again, it is important to
45
remember that these figures are based on that employees perceived to be the qualification required to enter a specific job, rather than whether people use their knowledge and skills when they are at work. The other surprising finding is the problem of ‘over-supply’ at Level 3 in Britain, as it has long been argued by some that the major skills gap in the UK is the shortage of workers with intermediate skills (Level 3). This appears to be less of a problem in Wales. Table 24:
Patterns of qualification mismatch, Wales and Britain, 2001 Qualification Mismatch
1
(% of jobs requiring qualifications at each level minus % of workforce qualified at each level)
Wales
Britain
Level 4 or above
-3.3
+0.3
Degree
-6.2
-1.4
Non-degree
+2.9
+1.7
Level 3
-1.8
-8.7
Level 2
-9.3
-4.9
Level 1
-4.6
-1.8
No qualifications
+19.2
+15.2
1
: A positive figure indicates excess demand, while a negative figure indicates over-supply. Source: 2001 Skills Survey, Felstead, Briefing No.6
Felstead also constructs a skills index based on a range of dimensions including knowledge, manual skills, teamworking, communications and social skills, computing and problem-solving (see Briefing No.6). This enables him to examine changes in the skill profiles of different regions of Britain between 1997-2001. Table 25 shows that Wales has moved from top spot in 1997 to almost the bottom of the pile only Scotland had a lower aggregate score on this index in 2001. Again, it needs to be remembered that each region consists of a relatively small number of cases, but Felstead concludes his Briefing by suggesting that: ‘The results for Wales suggest a dramatic change in job content – within the space of a decade, jobs in Wales have become less skilled and the economy has shifted from high skilled to low skilled production. What is remarkable is that this pattern of results is robust to a variety of skill measures. Nevertheless, the data presented here are based on relatively small sample sizes. Larger surveys are urgently required in order to corroborate and dissect (e.g., by sex) the pattern of results suggested here.’ (Briefing No.6).
46
Table 25:
Particular skills index by region/country, 2001
Region/Country
1
Particular Skill Index
Change, 1997-2001
1997
2001
Britain
2.410
2.518
+0.108
North East
2.257
2.509
+0.252
West Midlands
2.355
2.562
+0.207
South West
2.360
2.543
+0.183
Yorkshire and Humber
2.356
2.519
+0.163
East Midlands
2.348
2.506
+0.158
South East
2.448
2.551
+0.103
London
2.444
2.542
+0.094
East of England
2.448
2.506
+0.058
North West
2.451
2.506
+0.055
Scotland
2.428
2.449
+0.021
Wales
2.501
2.477
-0.024
1
: The Particular Skill Index is averaged across 36 common activities between 1997 and 2001. Source: 1997 Skills Survey and 2001 Skills Survey, Felstead, Briefing No.6.
3.12
There is a high degree of integration between the Welsh and English labour market, with considerable movement of students and graduate employees across national borders.
The overall proportion of students enrolling in 2002/03 in a university within their country of domicile is lower for Welsh students than any other British Universities. The enrolment was 62 per cent for Welsh domiciled students, compared to 95 per cent for England and 94 per cent for Scotland. Thirtyseven per cent of Welsh students enrolled in English HEIs, although Wales has 6,900 enrolments from students domiciled elsewhere in the UK (See Tomlinson, Briefing No.7). Table 26 is based on the Higher Education Statistical Agency’s (HESA) first destination survey. It shows that the proportion of Welsh domiciled graduates entering employment in the Principality (66%) is lower than Northern Ireland (76%), Scotland (85%) or England (95%). Likewise, in terms of graduates from Welsh HEIs a similar trend emerges as a little over half from Welsh HEIs enter employment in the Principality, compared to around three quarters of those from Northern Ireland and Scotland. The proportion for England was over 90 per cent, given the size of labour market.
47
Table 26:
The ‘retention’ rate of graduates entering employment by country of domicile and country of HEI attended
Country of destination
Percentage of domicile graduates
Percentage of graduates from country of HEI
Wales
66
53
England
95
92
Scotland
85
79
Northern Ireland
76
74
Source: HESA First destination Supplement 2001/02, Tomlinson, Briefing No.7
Further investigation of retention rates within employment shows that it is Welsh students that decide to study in England who are far more likely to work in another part of the UK. Table 27 shows that almost nine out of 10 Welsh graduates who studied within Wales stay in the Principality, against 35 per cent of those who studied in England. Moreover, almost a quarter of nonWelsh students who went to university in Wales found employment in the country. Table 27:
Employment destination of UK graduates gaining qualifications in UK IHEs by country of domicile, country of IHE and location of first destination.
Country of IHE
Country of Domicile
Wales
Destination Wales
UK
Wales
88
13
Wales
UK
23
74
England
Wales
35
61
England
UK
0.4
93
Source: HESA First Destination Supplement 2002/03, Briefing No.7
A study by Coombes, Page and Wilson (2003) based on a sample 14 months after graduation (rather than the six month survey point used in the HESA First Destination Survey) found that threequarters of originally Welsh domiciled graduates were working in Wales. This represents an increase from 70 per cent in 1999. Coombes, Page and Wilson (2003) also investigated perceptions of graduate jobs in Wales. They found some pessimism about graduate wage levels, the availability of jobs graduates want to do, career development prospects and the quality of jobs in their chosen field. Here there was very little difference in perceptions according to country of original domicile, with the exception of more negative perceptions of Welsh
48
pay levels amongst Welsh domiciled. However in light of increasing student debt, the perception and realities of lower wage rates in Wales may have an impact on the future destinations of Welsh graduate, as this study found that 42 per cent of all those surveyed said that student debt had made wage rates a more important factor in job choice. For those in graduate jobs outside Wales, graduates originally domiciled in Wales were much more likely to say they had searched unsuccessfully for employment in Wales. Only one in four had not done so. For those who were not originally domiciled in Wales, over 70% had not done so. Of those who searched unsuccessfully for employment in Wales, a half cited factors such as lack of jobs in their chosen fields, unable to obtain jobs in chosen location, poor quality of jobs in chosen field and relatively low wage levels. Non-Welsh domiciles were more likely to cite lack of Welsh language skills as an obstacle to finding employment A recent ‘milkround’ online survey of 1,500 graduates from across the whole of the UK asked respondents their views of the Welsh graduate labour market. The results suggest that Wales is actually a desirable employment location for many graduates, both of Welsh and UK domicile. However, this favourable view about working in Wales was offset by a view that it was more difficult to find suitable employment in the Principality. Again, most of the respondents viewed the Welsh economy as offering less in earnings and career scope, and limited mainly to public sector employment. Research by Drinkwater and Blackaby (2004) show that one in three Welsh born living in other parts of the UK have a degree, compared to less than one in four immigrants in Wales. They conclude that ‘Wales is losing a disproportionate share of it younger and more educated people, even after controlling for other personal characteristics’ (2004:21). However, Fevre suggests that ‘fears of a brain drain of graduate talent from Wales may have been exaggerated. While recent graduates are disproportionately likely to start their careers in major conurbations, and particularly in London, slightly older graduates seem to find Wales an attractive place to settle.’ This conclusion finds some support in the study by Coombes et al. (2003), noted above, who found that only 8.4 per cent of those who originally lived in Wales, but who were in graduate jobs outside Wales had no intention of ever returning to the Principality. Similarly, only 9.1 per cent of the non-Welsh original domicile who were in graduate jobs in Wales had no intention of ever leaving Wales (Briefing No.5). What seems clear from this analysis is that many more UK. graduates would be attracted to work and live in Wales, which could transform it into a genuine knowledge-driven economy.
49
4.
Implications for policy and future research
This report has focused on the relationship between higher education and the labour market. While the contribution of higher education to individual prosperity and economic competitiveness is of obvious importance, this analysis needs to be considered alongside the wider personal and social benefits of learning within higher education. Much of the debate about ‘graduate’ employment is based on outdated assumptions. The idea of a ‘graduate job’ and the ‘graduate labour market’ had some validity in the 1960s, when the majority who entered university found themselves on ‘fast track’ management training programmes or entered the established professions such as law and medicine. It also provided a useful shorthand for jobs that offered high salaries, good promotion prospects, high social status and job security. While this picture of graduate employment may remain dominant in the brochures of leading graduate employers, it is far removed from the occupational realities confronting many graduates. We need to avoid the tendency to assume that graduate employment is defined by what graduates do. People are paid for their employment, not credentials, although employers may use credentials as a way of screening candidates from specific jobs. While there are an increasing number of jobs that ask for degree level qualification, many of these jobs will not offer high salaries or good promotion prospects. Both the diversity of the graduate population and the diversity of graduate employment need to be at the heart of future theoretical and empirical research in this field. The evidence presented in this report highlights the problem of using data from organisations such as the Association of Graduate Recruiters (AGR), as representative of all graduates. The majority of graduates do not work for leading blue chip companies, but for small and medium sized organisations, which typically have lower salaries and fewer prospects for internal promotion. The data on graduate incomes also shows that a significant minority of graduates will struggle to repay their fees and in some cases, will never earn enough to rid themselves of debt amassed during their time in higher education. This may prove to be an even bigger problem in Wales, as graduate incomes are typically lower. The report highlights the danger of using ‘average’ incomes that obscure the realities of today’s labour market which reveals large differences in the incomes of people with the same level of education. Therefore, whatever funding and fee regime is introduced in Wales (or reformed in England), it needs to be sensitive to differences within and across the student and graduate population. In particular, the research evidence on graduate premiums and the returns to different graduates has practical implications for the appropriate level at which student loan repayment thresholds are set,
50
given these vast ‘inequalities’ in graduate earnings. It is also important to be extremely careful about ‘average’ graduate earnings because they disguise considerable variation in outcome according to, for example, the complex inter-relationships between gender, social class, subject choice etc., noted above. The evidence presented in this report shows that it is misleading to assume that a university degree is the route to high skilled, high waged employment. While some graduates are able to capitalise on their higher education to secure tough entry jobs, many others are forced to enter jobs for which they are over-qualified and under-paid (in terms of the expectations of what they thought a Bachelor’s degree would deliver). The prospect of significant debt resulting from their ‘investment’ in higher education will only add to a feeling that the ‘system’ has let them down. This is an issue that not only requires further empirical investigation, but conceptual and theoretical discussion based on an interdisciplinary framework. This is necessary to overcome the existing confusion over what constitutes ‘over-qualification’ or ‘overeducation’. While the abolition of university fees is off the current political agenda, the findings of this report suggest that a better way needs to be found to share the ‘risks’ involved in pursuing higher education. The issue of shared risk must also take into account periods of economic downturn and rising graduate unemployment. It must also be remembered that past rates of return offer clues, rather than a guarantee, of returns to a university education in the future. Much of the evidence presented in this report challenges the assumptions on which the Westminster government based its policy for student support. However, the high degree of integration of both higher education and the labour market between England and Wales will make it extremely difficult for the Welsh Assembly to depart in any significant way from the funding arrangements in England. To fundamentally change the Welsh system, one has to transform the English system. Therefore, although it is legitimate to talk about Higher Education in Wales or the Welsh economy, they are inextricably linked to institutional arrangements in England. Many Welsh students study and work in England, although many return to the Principally. Given these limitations on what a viable system of funding for Higher Education in Wales could look like, one option is to adopt the principle of ‘no win, no fee’. This has the major advantage over the English system of removing the sense of personal debt. There is no personal debt attached to an individual who has been through Higher Education in Wales (although it may be difficult to apply this to Welsh students who study in England). But if an individual is in employment that meets the appropriate earnings threshold, they will pay a ‘knowledge dividend’ through the tax code while they are earning at that level. They would continue to pay this dividend until both fees and state support with subsistence are covered. Those from deprived backgrounds could be offered non-repayable grants to cover part of their
51
subsistence costs or fees, and the overall amount payable could be adjusted for those working in ‘key’ services. This report also highlights the need for a major review of social and economic data sources within Wales. It is essential that the Labour Force Survey, British Skills Survey, etc., include a significant Welsh sample to better understand trends in employment and the labour market within Wales, and how these compare with trends in other parts of Britain and beyond. There is also a need to coordinate all the research on education, skills and employment that is currently being conducted on Wales. Further international comparative research is also required. Virtually all the developed economies have pursued the same skills agenda in the belief that advanced knowledge and skills are the key to economic competitiveness. However, how the supply of graduates is absorbed (or not) into national labour markets and its consequences for graduate incomes, employment and career prospects is an important area for future research. The expansion of higher education has been largely welcomed, but there has been little research on the impact of mass higher education on the labour market in Wales and England. An unintended consequence may be to further disadvantage those without a degree, as employers asked for degree level qualifications for jobs that were previously taken by those who had not entered higher education (Keep and Mayhew, 2004). This is also an issue that requires further investigation. Finally, whatever arrangements are introduced in Wales, a major review of the new funding arrangements should be simultaneously conducted in both Wales and England at the earliest opportunity. This review must be based on the new realities of employment, income and careers for all graduates, rather than a privileged minority.
52
Acknowledgements I would like to thank all those who have contributed to the briefing papers. This has offered a unique opportunity to present a wide range of evidence on graduates in the labour market that has been largely absent in policy debates. I would also like to thank Michael Tomlinson for the background notes he prepared for this report and Sandra Bonney who ‘works the magic’ in terms of presentation. Finally, I’d also like to thank Professor Ewart Keep, Deputy Director, SKOPE, University of Warwick, for acting as a ‘critical friend’.
53
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Future Skills Wales (2003) (http://www.sqilliaudyfodolcymru.com/index.php) Graduate Prospects (2002) The graduate labour market. Manchester: Prospects (www.prospects.ac.uk) Graduate Prospects (2004) Finalist’s career plans and expectations (Summer 2004). Manchester: Prospects.(http://www.prospects.ac.uk/cms/showpage/home_page/lab our_market_information/) Green, F., Ashton, D., Burchell, B., Davies, B. and Felstead, A. (2000). "Are British Workers Becoming More Skilled?" The Overeducated Worker? In L. Borghans and A. De Grip The Economics of Skill Utilisation. Cheltenham, Edward Elgar: 77-109. Green, F., McIntosh, S. and Vignoles, A. (2002). "The Utilisation of Education and Skills: Evidence from Britain." The Manchester School. 70 (6): 792-811. Guardian (2003) ‘Crying out for graduates?’ The Guardian (Education), September 16, 2003. Guardian (2003) ‘You might be richer than you think The Guardian, September 29, 2003. Guardian (2003). ‘No problem’. The Guardian (Education) December 16, 2003. Guardian (2004) ‘Students face £2,000 extra debt’. The Guardian, May 12, 2004. Guardian (2004) ‘UK degrees boost pay by 59%’. The Guardian, September 15 2004. Handel, M.J. (2000) ‘Is there a Skills Crisis? Trends in Job Skill Requirements, Technology and Wage Inequality in the United States’. The Jerome Levy Institute of Bard College Public Policy Brief No 62, 2000 (http:www.levy.org/docs/summary/sumspr01.html) HEPI (2003) ‘Demand for Graduates: a review of the economic evidence’ by Libby Aston and Bahram Bekhrandnia. http://www.hepi.ac.uk/articles/docs/graduatesES.pdf HEPI (2004) ‘Higher education supply and demand to 2010’, by Libby Aston. (http://www.hepi.ac.uk) Hicks, S., Lindsay, C., Livesey, D., Barford, N., and Williams, R. (2005) Public Sector Employment, London: Office of National Statistics, www.statistics.gov.uk/cci/article.asp?id=1095
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Howell, D. (2000) Skills and Wage Collapse. The American Prospect, Vol. 11, Issue No. 15., June 19, 2000-July 3, 2000. (http://www.prospect.org/print-friendly/print/v11/15/howell-d.html) IER (2001) Projections of Occupations and Qualification. IER Bulletin: IER: University of Warwick. Keep, E. (2004) ‘After Access: Researching Labour Market Issues’, in J. Gallacher (ed.) Researching Access to Higher Education, London: Routledge. Keep, E. and Mayhew, K. (2004) ‘The Economic and Distributional Implications of Current Policies on Higher Education’, Oxford Review of Economic Policy, 20, 298-314. Livingstone, D.W. (1999) The Education-Jobs Gap: Under employment or Economic Democracy. Toronto: Garamond Press. Mason, G. (2001) ‘The Mix of Graduate and Intermediate-level Skills in Britain: What should the balance be?’ Journal of Education and Work, Vol.14, No. 1, 5-27. Mason, G. (2002). ‘High Skills Utilisation Under Mass Higher Education: Graduate Employment in Service Industries in Britain’, Journal of Education and Work. 15 (4): 427-456. McIntosh, S. (2002) Further Analysis of the Returns to Academic and Vocational Qualifications. DfES Research Report No 370. London: HMSO. Observer (2003) ‘Degrees of Difference in an education battle’. The Observer, September 21, 2003. Peck, J. and Theodore, N. (2000) ‘Beyond ‘employability’’. Cambridge Journal of Economics, Vol. 24, pp. 729-749. Pollard, E., Pearson, R. and Willison, R. (2004) Next Choices: Career Choices Beyond University. Brighton. Institute for Employment Studies (IES). 405. Pryor, F.L. and Scaffer, D.L. (1999) Who’s Not Working and Why: Employment, Cognitive Skills, Wages and the Changing U.S. Labor Market. Cambridge: Cambridge University Press. Purcell, K. and Elias, P. (2004) Seven Years On: Graduate Careers in a Changing Labour Market. HECSU: London. Purcell, K. (2002). Qualifications and Careers: Equal Opportunities and Earnings Among Graduates. Manchester, Equal Opportunities Commission (EOC). 57
Purcell, K., Elias, P. and Wilton, N. (2004) Higher Education, Skills and Employment: careers and jobs in the graduate labour market. Research Paper 3. University of the West England & Warwick: Warwick Institute for Employment Research. (www.warwick.ac.uk/go/glmf) Reich, R. (1991) The Work of Nations, New York: Simon and Schuster. Sloane, P. J., Battu, H. and Seaman, P.T. (1999). "Overeducation, Undereducation and the British Labour Force." Applied Economics. 31 (11): 1437-1454. Smetherham, C. (2005). The Employability of First Class Graduates. School of Social Sciences. Cardiff, Cardiff University. Unpublished Ph.D. thesis. Statistical Bulletin SB 50/2004 First Destinations of Students Gaining Qualifications from Higher Education Institutions: Wales 2001/02, National Statistics/National Assembly for Wales. Times (2004) ‘Graduate pay falls as student rolls soar’, The Times, August 20, 2004 p. 1. Walker, I. and Zhu. Y. (2003). "Education, Earnings and Productivity." Labour Market Trends (March 2003): 145-152. Welsh Assembly Government (2002a) Reaching Higher: Higher Education and the Learning Country: A strategy for Higher Education in Wales, Cardiff, WAG. Wolf, A. (2002) Does Education Matter? London: Penguin. 1
See, for example, Keep, E. (2004) ‘After Access: Researching Labour Market Issues’, in J. Gallacher (ed.) Researching Access to Higher Education, London: Routledge.
2
See ‘2004 Finalists’ Career Plans and Expectations (summer 2004), http://www.prospects.ac.uk/cms/ShowPage/Home_page/Labour_market_information/
3
The UNITE Student Experience Report 2005, http://www.mori.com/polls/2004/unite-jan.shtml
4
The UNITE Student Experience Report 2005, http://www.mori.com/polls/2004/unite-jan.shtml
5
See ‘2004 Finalists’ Career Plans and Expectations (summer 2004), http://www.prospects.ac.uk/cms/ShowPage/Home_page/Labour_market_information/
6
NatWest – Press Release, “New Students Expect to Pay £26,000 For University Education”, 10 August, 2004, http://www.natwest.com/pressroom/index.asp?navid=PRESS_ROOM&pid=64
7
See http://www.agr.org.uk.
8
The NatWest 2004 Student Money Matters Survey, Natwest August 2004
9
See BBC (2003) ‘Student debt continues to climb’ BBC News On-line http://news.bbc.co.uk/go/em/fr//1/hi/business/3683421/stm
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10
The survey also shows that students at university in the South West finish their degrees with the highest debts, owing £14,802 on average. Students in the Midlands in contrast had the lowest debts, owing £11,484 on average. More than 60% of graduates had bank debts of £4,650 and 53% owed an average of £2,195 on credit cards, while 86% had student loans averaging £10,161. About 30% of students said that they also owed money to their parents, with debts averaging £3,192.
11
Student Living Report 2004, MORI/UNITE 2004.
12
Callender, C. and Wilkinson, D. (2003) 2002/03 Student Income and Expenditure Survey: Students’ Income, Expenditure and Debt in 2002/03 and changes since 1998/99, The Policy Studies Institute, DfES, Research Report No. 487.
13
Department of Education and Skills (2003) The Future of Higher Education, London: HMSO, p.11.
14
http://www.publications.parliament.uk/pa/cm200304/cmbills/035/2004035.htm
15
Blöndal, S., Field, S. and Girouard (2002), ‘Investment in human capital through post-compulsory education and training: Selected efficiency and equity aspects.’ OECD Economic Department Working Papers 333. http://www.olis.oecd.org/olis/2002doc.nsf/linkto/eco-wkp(2002)19
16
See Levin, H.M and Kelly, C. 1997 ‘Can education do it alone?’ in A.H.Halsey, et. al. (Eds.) Education: Culture, Economy and Society, Oxford: Oxford University Press.
17
See Brown, P. and Lauder, H. (forthcoming) Globalisation, Knowledge and the Myth of the Magnet Economy, in Lauder, H. et al. (Eds.) Globalisation, Education and Social Change, Oxford: Oxford University Press; Brown, P. Lauder, H., Ashton, D. and Tholen, G. (forthcoming) The Rise of the High Skill, Low Wage Economy?
18
Brown, P. and Hesketh, A. (2004) The Mismanagement of Talent: Employability and Jobs in the Knowledge Economy, Oxford; Oxford University Press.
19
All lifetime earnings are calculated on a 40 hour week, 52 week year, over 40 years.
20
Green, F, McIntosh, S. and Vignoles, A (1999) ‘Over-Education and Skills - Clarifying the Concepts’, paper given at the EEEG group annual conference, University of Wales, Swansea, July, 1999 (http://www.essex.ac.uk/ilr/eeeg/vignoles.pdf)
21
The within-group inequality in earnings for college graduates is not only far greater than that of the lower skilled, it has also been growing more rapidly, whereas non-graduates experienced a slow or no growth in within-group variance in earnings. See: Lemieux, T. (2003) ‘Residual Wage Inequality: A reexamination’, University of British Columbia, CLEER working paper nr. 2, http://www.econ.ubc.ca/cleer/papers/cleer002.pdf
22
Purcell, K. (2002). Qualifications and Careers: Equal Opportunities and Earnings Among Graduates. Manchester, Equal Opportunities Commission (EOC).
23
Purcell, K. (2002). Qualifications and Careers: Equal Opportunities and Earnings Among Graduates. Manchester, Equal Opportunities Commission (EOC).
24
Purcell, K. (2002). Qualifications and Careers: Equal Opportunities and Earnings Among Graduates. Manchester, Equal Opportunities Commission (EOC).
25
DfES (2003) The Future of Higher Education, White Paper, para. 1.28.
26
Pollard, E., R. Pearson and R. Willison (2004) Next Choices: Career Choices Beyond University. Brighton. Institute for Employment Studies (IES). 405.
27
Connor, H., C. Tyers, T. Modood and J. Hillage (2004) Why the Difference? A Closer Look at Higher Education Minority Ethnic Students and Graduates. Department for Education and Skills.
28
The Times Higher Education Supplement, June 18, 2004.
29
The Future of Higher Education, DfES, 2003: para 1.22: 16.
30
Wilson, R.A. (2001) Projections of Occupations and Qualifications 2000/2001 (London: DfEE).
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31
Institute for Economic Research (IER)/Department for Education & Employment (DfEE) (2001) Projections of Occupations and Qualifications 2000/2001, DfEE Research Brief No: RBX08-01, April 2001 (London: DfEE).
32
For a discussion of these issues, also see Brown, P. and Hesketh, A. (2004) The Mismanagement of Talent: Employability and Jobs in the Knowledge Economy, Oxford University Press.
33
Elias, P. and K. Purcell (2004) SOC (HE:) A Classification of Occupations for Studying the Graduate Labour Market. Research Paper No. 6. Researching Graduate Careers Seven Years On. ESRU/IER. .
34
Elias, P. and K. Purcell (2004) SOC (HE): A Classification of Occupations for Studying the Graduate Labour Market. Research Paper No. 6. Researching Graduate Careers Seven Years On. ESRU/IER. .
35
Post-secondary Awards ·
First professional degree. Completion of the degree usually requires at least three years of fulltime academic study beyond a bachelor’s degree.
·
Doctoral degree. Completion of a Ph.D or other doctoral degree usually requires at least three years of full-time study beyond a bachelor’s degree.
·
Master’s degree. Completion of the degree usually requires one or two years of full-time academic study beyond a bachelor’s degree.
·
Bachelor’s or higher degree, plus work experience. Most occupations in this category are management occupations. All require experience in a related non-management position for which a bachelor’s or higher degree is usually required
·
Bachelor’s degree. Completion of the degree generally requires at least four years, but not more than five years, of full-time academic study.
·
Associate degree. Completion of the degree usually requires at least two years of full-time academic study.
·
Postsecondary vocational award. Some programs last only a few weeks, while others may last more than a year. Programs lead to a certificate or other award not a degree.
Work-Related Training
36
37 38
·
Work experience in a related occupation. Many occupations requiring work experience are first-line supervisor/managers of service, sales and related, production, or other occupation, or are management occupations.
·
Long term on-the-job training. More than 12 months of on-the-job training or combined work experience and formal classroom instruction are needed for workers to develop the skills necessary to be fully qualified. This category includes formal and informal apprenticeships that may last up to five years. It also includes intensive occupation-specific, employer-sponsored programs that workers must successfully complete.
·
Moderate term on-the-job training. Skills needed to be fully qualified can be acquired during 1 to 12 months of combined on-the-job experience and informal training.
·
Short-term on-the-job training. Skills needed to be fully qualified can be acquired during a short demonstration of job duties or during one month or less of on-the-job experience or instruction.
See Phillip Brown and Anthony Hesketh (2004) The Mismanagement of Talent: Employability and Jobs in the Knowledge Economy, Oxford: Oxford University Press. See Brown and Hesketh, 2004; Briefing No.1. See Fevre, Briefing No.5.
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39
The Future Skills Wales 2003 Generic Skills Survey, undertaken on behalf of the FSW partnership by Experian Business Strategies and MORI.
40
These are discussed by Fevre in Briefing No.5.
41
These estimates are based on both the 2001 Skill Survey and data for the Labour Force Survey. See Briefing No.6 for details.
61
