Students and parents have long cared about the earnings potential of different degrees, but information previously available to them has been of low quality.
Instead of relying on the self-reported ‘Destinations of Leavers from Higher Education’ (DLHE) survey, which has all the usual problems of non-response that one gets with such surveys, LEO information comprises administrative school records, university records and official reported taxable earnings.
Unlike the DLHE data, which record earnings only six months and three years after graduation, before much of the earnings differences between institutions and subjects become apparent, the LEO dataset provides detailed and accurate information on earnings and employment for graduates throughout their early career by institution and subject.
This is an exciting development. For instance, it shows that medical students and economists are the highest-earning graduates in the UK, with median earnings of £47,000 and £33,000 a year in their mid to late twenties respectively. Students studying creative arts, on the other hand, earn only about £20,000 a year on average. Subjects such as economics, business and law show very variable median earnings across institutions, while others – in particular medicine, veterinary science and nursing – do not. This suggests that subject choice matters a lot for future earnings, while institution choice is much more important in some fields than in others.
Providing this information has the potential to improve higher education in the UK but, as always, there are several caveats.
Students would be misled if they believe that the reported differences between subjects and institutions solely represent the impact of a specific course. There are considerable differences between the types of students studying each course that may lead to differences in graduate earnings entirely independent of course quality.
These findings may also encourage universities to concentrate on improving graduate labour market outcomes. There has long been an argument that universities do not have enough “skin in the game”, meaning that they have limited incentives to improve the outcomes of their graduates. Recent increases in university spending on facilities such as fancy halls of residence and nice gyms suggests that their focus for attracting students is more on these factors than on teaching quality or labour market outcomes. Accurate data on graduate earnings that is readily available to prospective students may change this.
A drawback is that universities that have improved a lot recently may suffer as these data in effect reflect university quality from up to 10 years ago.
There will also be concerns that universities may focus too much on labour market outcomes rather than on education that serves wider purposes, such as nursing or the arts.
Increased focus on graduate earnings could also generate perverse incentives for universities; admission policies favouring those who are likely to have the highest earnings could be very bad for access to universities for those from poorer households.
This dataset will help the government to understand better where most of its spending on higher education is concentrated. It is now the case that the vast majority of the government subsidy to higher education is through unpaid student loans. Understanding where this subsidy is going is important information and should help to inform policy.
A lack of focus on graduate outcomes was probably reasonable when universities catered to a small fraction of the population. However, in a world where more than 40 per cent of young people go to university, incurring hefty debts of more than £50,000 along the way, surely labour market outcomes are necessarily a crucial part of the picture.
These data, despite important caveats, provide an exciting opportunity to improve the decision-making of students, and may encourage greater focus from universities on the long-term employment of their students and better inform policymakers.
Jack Britton is a senior research economist at the Institute for Fiscal Studies and postdoctoral fellow of the British Academy whose research focuses on graduate earnings