Graduate earnings figures with explosive political impact

John Morgan looks at the policy implications from long-awaited research into graduate earnings

April 13, 2016
Mushroom cloud

Is the mushroom cloud visible yet?

The long-awaited research to gather data on earnings for graduates by university attended and course studied, published today, was once memorably described as the potential “equivalent of the Manhattan Project for universities in England”.

The implications of the research (which I’ve written about in a news story here) are potentially far reaching for the sale of student loans and tuition fee caps.

But the researchers on this project – Jack Britton of the Institute for Fiscal Studies, Lorraine Dearden of the IFS and UCL Institute of Education, Neil Shephard of Harvard University and Anna Vignoles of the University of Cambridge – may also have challenged some of the prior expectations about their study.

The paper does find “considerable” variation in graduate earnings across different universities, but it says that “much of this is explained by student background and subject mix” at those institutions.

So, while many expected the research to emphasise the divergence in graduate earnings between “high” and “low” performing institutions, it has actually uncovered evidence that students’ social backgrounds are a key factor in the level of their later earnings, more so than where and what they study.

In the eyes of many, the key policy messages to take away will be that universities need to do more to support poorer students to help them make their way into jobs and/or that government needs to do more to tackle income inequality.  It could be argued that the research undermines  the standing of “social mobility” as a key concept in education policy; and that it weakens the assumption that if some poorer students are given fair access to “top” universities then that, in itself, helps ensure a fairer society.

But there are also messages to take away from the research that will prove much more politically difficult for (some) universities.

The Times and Financial Times both focus on the interesting finding that, when it comes to the figures for men, 23 (unnamed) institutions were found to have median graduate earnings lower than those for non-graduates 10 years on.

The research does point out that these universities may be locally focused and in regions with below average earnings.

But the government is unlikely to share sensitivities about naming institutions or regional benchmarking. The Department for Business, Innovation and Skills has said that by publishing its own figures on graduate earnings, it aims “to create an incentive and reward structure at universities by distinguishing the ones that are delivering the strongest enterprise ethos and labour market outcomes for their students”.

Some universities, perhaps those in more deprived regions, are going to feel some pressure over their graduate earnings figures. And this may have consequences for their funding.

Professor Shephard seemed to take a different message from the research compared with his colleagues. He has emphasised the variability in earnings between universities and courses, rather than the role social background plays, and said the next step was to use the graduate earnings figures to calculate student loan write-off levels (by university and by course, most likely).

“Given the relatively low earnings of graduates with degrees in some subjects, the level of public subsidy for these graduates is likely to be greater than for other graduates in other subjects, such as economics, even given the lower costs of provision for some subjects as compared to others,” the IFS paper says in its conclusion. “Making this explicit when considering the shape of higher education and in particular where any further expansion might take place would seem important.”

If the government sees graduate earnings figures as a chance to question public subsidy via student loans for courses deemed to have poor outcomes, such earnings figures could be transformative (creative arts was singled out by the IFS paper as performing poorly on earnings).

Calculating student loan write-off figures (the resource accounting and budgeting (RAB) charge) at individual universities could also be a crucial step in the sale of student loans to universities, an idea pushed by Lord Willetts in his time as universities and science minister.

Universities would be interested in this scheme only if they were given permission to charge higher fees as a quid pro quo, some have suggested.

So this is an important area to watch – judge for yourself whether you need to wear protective goggles and retreat to a safe distance.

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Reader's comments (2)

The authors themselves say that the effect of family background is likely to be more pronounced than this data shows because they could only calculate family wealth retrospectively by looking at the rate of student loan taken. Any students borrowing nothing were excluded, yet these students are highly likely to come from the wealthiest families and (on this data) to have the highest graduate income. So universities don't work as social levellers - though it would be interesting to ask what does... the school system? This report won't be used for social justice interventions anyway. Much more worrying is the suggestion that any public subsidy that still finds it way to universities should depend on the salaries of course leavers. That seems to heap inequity on inequity. Universities educate people for many socially valuable careers that don't attract high salaries. If the 'future shape of HE' is moulded to favour courses that produce high-salaried graduates - already taken disproportionately by people from wealthy backgrounds - the losers will be in education, social work, nursing and health sciences, as well as the easily-targeted 'Creative Arts'. These students might not start out or end up rich, but they produce more social value than all the high-earning economists, especially as the economics curriculum doesn't seem to have benefited from any insight into recent economic events.
It is almost as if the authors have taken their research cue from Nicky Morgan and her "don't bother studying the creative arts" mantra, and have produced a 'factual' piece of policy-based evidence that, no doubt, will play a major role in the anti-arts 'evidence-based' policy that will no doubt follow in its wake. What else in one to make of statements such as: "Creative Arts graduates have very low earnings is because they possess characteristics that would be associated with lower earnings anyway" (p45); "...there are some subjects that are associated with very low subsequent earnings, even allowing for student characteristics and institution. The clearest example of this is Creative Arts" (p54); "Graduates who study the creative arts, for example, tend to earn less and so over time we might be concerned that these shifts may bring down the aggregate graduate earnings premium" (p55); "It may be that students prefer some lower earning subjects, irrespective of expected earnings. It may however be a supply side issue, with institutions preferring to offer more places for lower cost courses since fees do not typically vary by subject. Staffing creative arts degrees is likely to be much cheaper than staffing degrees in Economics, Law and Maths and Computer Science" (p55); "These findings have implications for our understanding of the nature of subsidy of higher education. Given the relatively low earnings of graduates with degrees in some subjects, the level of public subsidy for these graduates is likely to be greater than for other graduates in other subjects... Making this explicit when considering the shape of higher education and in particular where any further expansion might take place would seem important." (p55). The report is another, unfortunately and unnecessarily influential case of knowing the price of everything and the value of nothing. It signally fails to mention that the UK’s creative economy employs around 2.5 million and is growing much faster than the UK workforce as a whole. That the creative industries – which specialise in employing people with creative occupations – now account for 5.2% of Gross Value Added (GVA), and is growing faster than all other sectors, except real estate activities. And that does not include the GVA contributions of people employed in creative occupations outside of the creative industries. Doing so, according to NESTA, would have a significant effect, making the creative economy’s GVA contribution almost 10%. What subjects did many of those essential contributors to the national economy study? You'll find many of them categorised under Creative Arts.