Overqualified and lowly paid

Kent study finds that the 'graduate-pay premium' varies dramatically, writes Melanie Newman

August 13, 2009

The financial returns from degrees - the "graduate-pay premium" - is becoming much more varied among the graduate population, a study has found.

The University of Kent's Francis Green, professor of economics, and Yu Zhu, senior lecturer in economics, show that the premium for top-earning male graduates, compared with those with just GCSEs, rose by 21 percentage points between 1994 and 2006.

But for those at the bottom end of the earnings spectrum, the premium fell by 3 percentage points.

For women, the rise at the top end was 7 percentage points while at the bottom end the fall was 8 percentage points.

The academics believe that the rising variation in returns is associated with an increasing number of overqualified graduates.

"We propose that returns at the lower end have fallen because more people at this end are failing to obtain graduate-level jobs," they say in an upcoming paper, "Overqualification, Job Dissatisfaction and Increasing Dispersion in the Returns to Graduate Education".

Surveys of British employees show that between 1992 and 2006, there was "substantial growth" in the proportion of graduates overqualified for their jobs.

"Moreover, successive age cohorts entering employment have been experiencing greater overqualification," the paper says.

By 2006, almost a quarter of graduates reported that they were in sub-graduate-level jobs - but did not report that they were underutilising their skills.

The men in these positions earned an average of 28 per cent less and the women an average of 33 per cent less than they would have if they were in graduate roles.

The authors add that 10 per cent of graduates reported being in non-graduate jobs that underutilised their skills.

This group suffered "pay penalties" of 46 per cent for men and 47 per cent for women.

However, Professor Green and Dr Zhu say that the suggestion that efforts to widen participation in higher education should be reversed to solve the issue of overqualification was indefensible.

There may be non-pecuniary "social" returns from education, they argue, and policies to raise employer demand for degree-level skills would be a more appropriate response.

Current and future cohorts of school-leavers may also decide that investing in university education is too risky given the diversity in potential financial returns, they add.

The Government should do more to disseminate information on potential returns to prevent disappointment, the authors conclude.

Meanwhile, preliminary results of a study by a researcher at Royal Holloway, University of London, show that the teaching reputation of a university can earn its graduates a "wage premium" of up to 6 per cent.

Arnaud Chevalier, senior lecturer in economics, suggests that the current system, under which most universities charge the same tuition fees, is unfair as students attending "lower-quality institutions" pay the same as those attending "top-quality" universities but achieve lower returns. His research will be completed later this year.


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