Despite large rises in student numbers, the graduate earnings premium has persisted. This has been due to the increase in the supply of graduates being matched by an equal increase in the demand for graduates. This study uses econometric techniques to examine the premium paid for possessing a degree, paying particular attention to how this varies across the UK.
We use the Annual Population Survey (APS) between the years 2004 and
2007. Premiums are calculated separately for males and females, relative to a baseline of persons whose highest qualifications are A-levels. We estimate an earnings equation, using hourly earnings, which includes controls for personal characteristics such as age, ethnicity, health and marital status; alongside employment details including job tenure, employer size and sector, with dummies to control for industry and occupation.
We find a graduate earnings premium of 25.7% for men and 27.1% for women, relative to persons whose highest qualifications are A-levels. All results presented here are significant at the 1% level.
East
Male Female
Premium t-stat Premium t-stat
25.0% 22.78
24.0% 23.1
East Midlands
London
North East
North West
18.5%
54.8%
17.3%
19.7%
16.36
68.17
15.74
24.76
20.1%
56.2%
20.4%
23.0%
18.83
67.73
20.58
29.98
Scotland
South East
South West
Wales
22.6%
31.8%
18.8%
14.8%
32.08
42.44
21.06
17.42
25.5%
28.5%
19.9%
20.0%
38.37
39.15
22.93
24.85
When comparing regional graduate premiums to a UK level baseline, we
17.2% 18.05
20.9% 23.1
England. In fact, relative to the national baseline of possessing A-levels, working in London and possessing a degree results in a premium of 54.8% for men and 56.2% for women. Much of this is being driven by the generally high level of earnings in the South East regions.
By just focusing on the reward for possessing a degree relative to A-level holders within the same region, we see that the large graduate premium of the South Eastern regions has been reduced dramatically. London now offers the smallest graduate premium, due to its high levels of earnings for Alevel holders (the premium has fallen to 19.8% for men). Graduate returns within regions are now greatest for men in the North East (26.5%) and for women in Scotland (27.6%).
Table 3: Graduate Earnings Premium by Subject
Medicine & Dentistry
Medicine Related
Biological Sciences
Veterinary & Agricultural
Physical Sciences
Maths & Computing Sciences
Engineering
Technologies
Architecture
Male Female
Premium t-stat Premium t-stat
89.6% 32.13
92.7% 33.08
40.9% 22.48
39.7% 38.83
22.5% 17.73
28.3% 24.98
16.4% 6.83
22.3% 9.27
25.7% 25.15
34.6% 22.68
26.1% 24.97
37.4% 22.63
31.1% 35.66
33.1% 12.67
17.9% 7.17
19.2% 5.25
25.5% 17.91
29.3% 12.39
Social Studies
Economics
Politics
Law
Business Administration
Mass Communications
Linguistics & Classics
24.8%
34.6%
20.7%
41.2%
32.4%
9.6%
22.0%
18.46
21.74
9.22
22.83
36.91
4.36
10.99
27.8%
34.2%
27.3%
44.1%
32.6%
19.0%
30.9%
28.35
15.52
10.33
25.98
35.92
10.48
21.82
European Language & Literature 20.9% 6.81
29.0% 14.98
Other Language & Literature 29.8% 4.37
35.1% 6.24
History & Philosophy
Arts
Education
13.1%
8.8%
27.1%
9.6
6.58
18.69
26.6%
17.2%
30.6%
19.26
14.25
26.4
Note: Due to a change in the coding of degree subjects between 2004 and 2005 in the APS,
Table 3 excludes observations from 2004.
Male Female
Premium t-stat Premium t-stat
East
East Midlands
London
North East
North West
Scotland
South East
South West
Wales
West Midlands
Yorkshire
22.3%
26.1%
19.8%
26.5%
25.4%
26.2%
25.5%
22.6%
20.3%
24.6%
21.0%
12.48
13.76
15.21
16.52
21.5
26.26
21.43
15.59
15.06
16.63
15.13
20.1%
24.7%
23.0%
26.4%
27.3%
27.6%
22.0%
23.6%
22.0%
26.7%
26.9%
10.92
12.32
15.49
16.92
21.62
28.03
18.31
15.26
16.69
16.93
17.39
Disaggregating by subject reveals the greatest graduate premiums to exist for medicine and dentistry, and medicine related subjects, followed by law, economics and business administration. It should be recognized that some of the large premium enjoyed by medicine and dentistry may represent the additional years of study required by the degrees under this classification.
The lowest returns to obtaining a degree exist in arts and mass communications.
Regional results suggest that whilst degrees are most highly rewarded in
London and the South East (compared to national earnings of A-level holders), after controlling for the already high rates of pay to A-levels in these regions the greatest graduate premiums, relative to A-levels ,are found in
Scotland and the North East. Results also confirm that females have more to gain by obtaining a degree than males and that medicine and dentistry offers the largest mark up.