The poor don't buy flimsy money-back guarantees

January 10, 2003

The economic returns of a degree often quoted by ministers are misleading and liable to be disbelieved, says Libby Aston

The higher income that graduates earn through their working lives is frequently quoted as a reason for going to university - the Department for Education and Skills recently estimated that the average lifetime earnings of a graduate exceed those of a non-graduate by £400,000.

However, the average rate-of-return figures and the average comparative lifetime earnings figures quoted are imprecise and misleading. Their use is unlikely to persuade young people - particularly those from poorer backgrounds - to enter higher education. Young people are increasingly sophisticated in recognising their self-interest, and misleading statistics will be disbelieved and may be counterproductive.

The figures are misleading because in practice it is impossible to measure these returns accurately and because they disguise a very diverse range of earnings.

For an accurate calculation, current graduates' earnings would need to be known over the next 30 to 40 years - an impossible requirement. Instead, calculations rely on old data about entrants to a very different labour market with far fewer graduates, combined with extremely speculative projections. The earnings of enough people without a degree - with roughly the same capabilities and intelligence - need to be known to be able to calculate the graduate premium received just by virtue of getting a degree. However, the control group of non-graduates simply no longer exists - the graduate premium is made impossible to calculate because nearly all students who achieve two A levels or more now go into higher education. The £400,000 figure, calculated by the DFES using an unweighted sample from the Labour Force Survey, compares the earnings of all graduates with those of all non-graduates and takes no account of individual capabilities. It is, therefore, not a meaningful measure of a return on a qualification.

Any attempt to move beyond the average rate of return for all graduates to specific sub-groups renders the calculation even more problematic. Claims that the returns from a higher education qualification vary greatly by degree subject, class of degree and institution attended need to be treated carefully: they may be true, but they are unverifiable. Using average figures of earnings or returns is misleading because of the increasing disparity in graduate salaries. As the graduate labour market grows ever more diverse and fragmented, average salaries may continue to increase, but a significant minority are now going into non-graduate jobs at lower salaries. It could be that average graduate salaries are being maintained by an increasingly high level of competition for the best graduates from the major graduate employers. If more graduates are entering non-graduate positions at low salaries and not receiving the golden "average" graduate salary, then how can they be sure that they are going to gain just by having a degree?

The new foundation degrees would be a more tempting option if they provided exclusive access to certain jobs, as is increasingly the case with some degrees. However, this new qualification's lack of currency in the job market means that this is not yet the case.

Graduate salaries vary greatly by degree subject, class of degree and institution attended, although whether this indicates a variation in rate of return is unverifiable. Graduate salaries have also been shown to vary by age, gender, ethnic background and social-class background.

For some people, investment in higher education is simply too high a risk to take. They may feel that they are less likely to enter a high-ranking university, to complete their qualification, to achieve a high classification of degree and to achieve the average graduate salary in the labour market. It may be rational for them to enter the job market sooner rather than later on a lower wage. Couple this with evidence that social class influences attitude to risk and it is clear why arguments about average returns may not be sufficient to persuade some people to enter higher education.

Variation in graduate salaries by itself begins to explain why not everybody enters university despite the higher lifetime earnings - which, if not £400,000, are clearly substantial. This is not an argument that there is no economic return and it is certainly not arguing against expansion. However, the economic arguments put forward hitherto have been unsophisticated and misleading, and are likely to be disbelieved, damaging the cause of expansion in the eyes of the very people who will need to be persuaded if we are to widen participation.

Libby Aston is a senior researcher with the Higher Education Policy Institute. The views expressed are her own.

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