University helps ‘even out’ earnings gaps between ethnic groups

Latest analysis of English graduate earnings still finds large ‘unexplained’ differences in salaries  

March 26, 2021
A steam iron ironing a shirt, representing smoothing out inequality
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Higher education can help to “even out” the “unexplained” earnings variations between people from different ethnic groups in England, but a “substantial” gap remains between white male graduates and others, a new report suggests.

The study, the latest in a series of analyses of the Westminster government’s Longitudinal Education Outcomes data set on graduate earnings, says that, on average, those from all socioeconomic and ethnic groups tend to earn more after going to university compared with peers that do not.

Specifically, the researchers from the Institute of Fiscal Studies (IFS) estimate that within each group at least two-thirds of all graduates “are overall better off financially” from higher education when compared with non-graduates.

However, their average findings mask considerable variations in earnings for graduates among the different groups when compared with non-graduates.

For instance, for socioeconomic groups, state-educated graduates from the poorest families benefit the most – despite having the lowest median earnings at aged 30 – due to the fact they are likely to have earned much less if they had not gone to university.

With different ethnic groups, the average financial returns for going to university are highest for South Asian students, with men and women in the Pakistani ethnic group achieving especially high earnings compared with peers who do not go into higher education.

And the research also finds that graduates who were privately educated tend to have much higher returns from going to university, with male graduates from this group earning £250,000 more on average over their lifetime.

The study says that institution choices partly explain why private school students get higher returns from university, while subjects studied can explain the variation seen in earnings returns by ethnicity.

A key finding of the report is also that differences in earnings between different groups that remain “unexplained” after accounting for factors such as prior attainment tend to be smaller for graduates than for non-graduates.

This implies that “differences in the returns to higher education ‘even out’ some of the unexplained earnings differences between non-graduates”. However, it adds that “large unexplained earnings gaps between socioeconomic and ethnic groups remain” for graduates.

“In particular, controlling for background conditions, prior attainment, and university and subject choice, graduate men from all non-white ethnic groups earn significantly less than white British graduates,” the report says, something that “may reflect the effects of labour market discrimination”.

Ben Waltmann, senior research economist at the IFS and a co-author of the report, said the report shows “that university can, to some extent, level the playing field between people from different ethnic groups”.

But, he added, the “significant gaps” that remained in the case of white men compared with male graduates from non-white ethnic groups were striking.

Meanwhile, Jack Britton, associate director at the IFS and a co-author of the report, added that the results showed that “going to university is still an especially good financial decision” for students from the poorest families.

However, he added that the data suggest only a few of them “get rich as a result of getting a degree” with one reason for their high earnings return “regrettably” being that the “earnings prospects for this group are otherwise quite low”.

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