UK graduates earn highest rate of return

August 30, 2002

British graduates earn a better rate of return on their degree studies than counterparts in any comparable country, according to a study by the Organisation for Economic Cooperation and Development. The report will provide ammunition for those arguing for higher tuition fees.

A male British graduate can expect an 18.5 per cent return on his investment in tertiary education, compared with 14.9 per cent in the US and 7.9 per cent in Japan. A female can expect a 16.1 per cent return, compared with 14.7 per cent in the US and 7.2 per cent in Japan. Of the ten countries in the survey - including Germany, France, Italy and Canada - the UK came top for both sexes.

Sveinbjörn Blöndal, co-author of the study, said: "For every pound that the average UK student invests in education - both in terms of fees and foregone earnings - he or she can expect to get on average 18 pence every year during the working life in return.

"The earnings advantage conferred by higher education is relatively high in the UK, and the cost of education is relatively low since tertiary programmes are comparatively short and involve smaller forgone earnings than in many other countries. Other factors cancel each other out. For example, there is comparatively generous student support but this is partially offset by high tuition fees."

Nick Barr, professor of public economics at the London School of Economics, said that the report offered evidence that tuition fees in Britain should rise to reflect the benefits conferred by a degree.

Dr Barr said: "Graduates earn an extra £400,000 over a lifetime and therefore it is right that a contribution is made towards the cost of higher education."

The study offered two interpretations of why the rates of return are above the real interest rate and the return on other investments. It said that either there is a shortage of better-educated workers or that some graduates earned far less than others.

Dr Blöndal said: "I would like to emphasise that the reported rates of return refer to the average student; they might be significantly smaller for students of lower than average abilities."

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