Research published by the Institute for Fiscal Studies shows that graduates from wealthier family backgrounds earn significantly more than those from poorer backgrounds. If you compare the 20% of graduates from the richest backgrounds with the remaining 80%, the average earnings gap in 2012/13, 10 years after graduation, was £8000 per year for men and £5300 for women. Even when you take graduates in similar degrees from similar universities, there is still a gap of around 10% between those from richer and those from poorer backgrounds.
The research also shows that in 2012/13, 10 years after graduation, the median earnings for economics graduates was the second highest of any subject (just behind graduates in medicine) and that at the 90th percentile economics graduates had the highest earnings (£93 900 for women and £121 400 for men) of any subject. In fact, graduates in economics were the only males at this percentile earning over £100 000. (Click here for a PowerPoint of the chart.) As the Press Release to the IFS working paper states:
For males, it is estimated that approximately 12% of economics graduates earned above £100 000 some ten years after graduation; by contrast,
6% of those studying medicine or law earned more than £100 000.
For females, it is estimated that approximately 9% of economics graduates earned above £100 000 some ten years after graduation; by contrast, just 1% of those studying medicine and 3% of those studying law did so.
For some subjects, graduates earned little more than non-graduates.
Those studying the creative arts had the lowest earnings, and indeed earned no more on average than non-graduates.
The research also shows that earnings vary substantially by gender and university. For those earning £8000 or more, the median earnings for male graduates 10 years after graduation was £30 000 (compared with £21 000 for non-graduates), whereas for women it was £27 000 (compared with £18 000 for non-graduates).
Earnings are substantially higher for graduates from some universities, such as Oxford, Cambridge and the LSE. “At the other end of the spectrum, there were some institutions (23 for men and 9 for women) where the median graduate earnings were less than those of the median non-graduate ten years on.” Differences in graduate earnings by university tend to compound the difference by students’ family background as those from poorer backgrounds disproportionately attend universities with lower average graduate earnings by discipline.
The following articles consider the findings and their implications for higher education policy
Articles
Graduates from wealthy backgrounds reap earnings benefits Times Higher Education, John Morgan (13/4/16)
Graduate Earnings Guided By Parents’ Wealth, Institute For Fiscal Studies Report Finds Huffington Post, George Bowden (13/4/16)
Graduates from poorer backgrounds earn less than richer peers on same course, major international study finds Independent. Oliver Wright (13/4/16)
Richer students have higher graduate income, study finds The Guardian (13/4/16)
Want a Higher Salary? It Helps If You’re a Man With Rich Parents Bloomberg, Robert Hutton (13/4/16)
Economics graduates are in the money Why Study Economics? Economics in Action blog (15/4/16)
IFS paper
What and where you study matter for graduate earnings – but so does parents’ income IFS Press Release (13/4/16)
How English domiciled graduate earnings vary with gender, institution attended, subject and socio-economic background IFS Working Paper W16/06, Jack Britton, Lorraine Dearden, Neil Shephard and Anna Vignoles (13/4/16)
Data
Free Online Statistics – Students & qualifiers Higher Education Statistics Agency (HESA)
Applications and acceptances for types of higher education course – 2015 UCAS
What do graduates do? Higher Education Careers Services Unit
Questions
- For what reasons are graduates from rich backgrounds likely to earn substantially more than graduates from poor backgrounds?
- Why are graduates in economics likely to earn more than graduates in other subjects, especially those in the top percentile of earners from any given subject?
- How might marginal productivity help to explain the differences in earnings of different graduates?
- What are meant by ‘soft skills’. Why may students from richer backgrounds have better soft skills in the context of (a) university admission and (b) getting a job on graduation?
- Why are female graduates likely to earn less than male graduates with the same class of degree in the same subject?
- What could be done by (a) universities and (b) the government to increase social mobility?
- Do you think that the findings of the research have implications for the way students’ study is funded? Explain.
Student fees are set to rise to between £6000 and £9000 per year from 2012 (see Will students be Browned off?. But I’m sure you know that already! Not surprisingly, there has been considerable debate about the effects on student debt and whether potential students will be put off from applying to university. But there is another issue, explored in the article below. This is the question of the ‘marketisation’ of higher education.
With the exception of the STEM subjects (science, technology, engineering and maths) universities will no longer receive any teaching subsidy from the government. Teaching will have to be funded from student fees. This means that provision will depend on supply and demand. If there is a high demand for certain courses, then the courses will be financially viable for universities. If not, they will have to close (unless the university chooses to cross-subsidise them from other profitable courses).
This might be fine if the market for university places were perfectly competitive and if questions of inequality of access were fully taken into account. But the higher education market is not perfect. The article looks at some of these imperfections and why, therefore, a pure market system will fail to achieve the optimum allocation of university places.
Browne’s Gamble London Review of Books, Stefan Collini (4/11/10)
Questions
- What information failures are there in the market for higher education places?
- What externalities are involved in higher education and will this lead to an over or underprovision of higher education in a pure market system?
- Apart from externalities and information asymmetries, what other market failures apply to the market for student places in HE?
- What are the arguments for subsidising non-STEM subjects (as well as STEM ones)? Should these subsidies vary from course to course and from university to university?
- What is the best way of tackling the problem of unequal access to higher education?
Lord Browne of Madingley, the former chief executive of BP, has been conducting a review of higher education and its funding in England. The report was published on Tuesday 12 October. At present, student fees are capped at £3290 per year. From the academic year 2012/13 Browne recommends that the cap be removed, allowing universities to charge what they like (or what the market will bear). It is anticipated that, under these circumstances, universities would typically charge around £7000 per year, but some universities could charge much more – perhaps more than £12,000 for courses in high demand at prestigious universities. Universities would receive reduced funding from the government, through a new Higher Education Council, and the funding would vary by subject, with ‘priority’ subjects, such as science, technology and medicine, being given more. It is anticipated that total government funding for teaching to universities in England would be only just over 20% of the current level.
Browne recommends that universities that charge more than £6000 a year would have to pay a proportion of the extra income to the government as a levy for supporting poorer students. Those that charge more than £7000 would have to demonstrate that they were widening access.
Students would not need to pay any of the fees upfront (although they could do if they chose). Instead, they would receive a loan to cover the full fee. They would also be eligible for an annual loan of £3750 to cover living expenses. In addition, students from households with incomes below £25,000 would be eligible for a cost-of-living grant of £3250 on top of the loan. with household incomes above £25,000 the size of this grant would diminish, and disappear with household incomes above £60,000.
Students would begin paying back their loan after they graduate and are earning more then £21,000 per year (the current figure is £15,000). The amount that graduates would be required to pay back would rise sharply as earnings increase. For example, with an income of £30,000 per year, the graduate would be required to pay back £68 per month; with an income of £60,000 the monthly payment would be £293. Interest would accumulate on the unpaid balance at a rate equal to inflation plus 2.2%. For those earning below £21,000 threshold, it would accumulate at the rate of inflation only.
Not surprisingly, there have been mixed reactions to the recommendations from universities. Some universities have argued that competition will mean that they would not be allowed to charge the approximately £7000 fee that would be necessary to make up for the reduction in direct government funding. Predictions of closures of university departments or closures or mergers of whole universities are being made. Other universities have welcomed the ability to charge significantly higher fees to help their financial position.
The reactions from prospective students have been less mixed. With students starting in 2012 set to graduate with debts in excess of £30,000 and many with much higher debts, the Browne Review report makes bleak reading.
So who are the gainers and losers and what will be the benefits to higher education? The following articles look at the issues.
Note that the government has subsequently decided not to follow Browne’s recommendations fully. Annual fees will be capped at £9000 and the government expects that fees will typically be £6000.
Articles
Lord of the market: let competition and choice drive quality Times Higher Education, Simon Baker (14/10/10)
In the shake-up to come, no guarantees for anyone Times Higher Education (14/10/10)
Browne review: Universities must set their own tuition fees Guardian, Jeevan Vasagar and Jessica Shepherd (12/10/10)
Cable ‘endorses’ tuition fee increase plan BBC News (12/10/10)
Browne review at a glance Guardian, Jessica Shepherd (12/10/10)
Foolish, risky, lazy, complacent and dangerous NUS news, Aaron Porter (12/10/10)
Student debt: the £40k question for Lord Browne (includes two videos) Channel 4 News, Aaron Porter (8/10/10)
Blind spots in education proposals Financial Times letters, Philip Wales (14/10/10)
Tuition fees: securing a future for elitism Guardian, comment is free, Carole Leathwood (13/10/10)
NUS Scotland president Liam Burns condemns English tuition fee plans Courier (13/10/10)
Lord Browne review: round-up of reaction Telegraph (12/10/10)
University of Leeds responds to Lord Browne’s review of university funding Academia News (12/10/10)
Browne Review: Scrap university fees cap Chemistry World (12/10/10)
Invisible hand of market takes hold Financial Times (12/10/10)
A personal perspective on the Browne Review Progress Online, David Hall (12/10/10)
Tuition fee increases will be capped, says Nick Clegg BBC News (24/10/10)
Webcasts and podcasts
Students to face ‘unlimited fees’ BBC News, Nick Robinson (12/10/10)
Lord Browne interviewed by Nick Robinson BBC News (12/10/10)
Aaron Porter and Steve Smith on university funding and fees BBC Daily Politics (12/10/10)
University proposals create ‘two-tier system’ BBC Today Programme, Professors Roger Brown and Nicholas Barr (13/10/10)
The report and the NUS and IFS responses
Securing a sustainable future for higher education Independent Review (12/10/10)
Browne Review home page Independent Review
Initial Response to the Report of the Independent Review of Higher Education Funding and Student Finance (the Browne Review) NUS, Aaron Porter (10/10/10)
Graduates and universities share burden of Browne recommendations Institute for Fiscal Studies (12/10/10)
Questions
- To what extent will the proposals in the Browne review result in a free market in university courses?
- To what extent will competition between universities drive up teaching quality?
- Identify any market failures that might prevent an efficient allocation of university resources?
- To what extent will Browne’s proposals result in a fair allocation of resources between graduates and non-graduates, and between those who graduate under the new system and those who graduated in the past?
- Identify any externalities involved in university education. In what ways might these externalities be ‘internalised’?
For some time now, education has been a top priority for the government. They have been tackling standards in schools and have a target of a 50% participation rate in higher education. Most people agree that school education should be free, but opinion is divided when it comes to higher education. Is the return to the individual greater than that to society or vice versa? Is it the same for all degrees? This is one of the questions that affects funding. Should the individual pay? Or the government? Or should there be a mixture of funding?
The question of university education has become even more of an issue in the current recession, with many seeing a university education as a way of avoiding, what could be, inevitable unemployment. With this increase in demand, there is increasing pressure on the funding: it is simply not fiscally feasible to fund everyone’s university education. As such, business leaders have advised a rise in tuition fees. Students could be charged thousands more and made to face a higher interest rate on any loans. This highly contentious issue is considered in the articles below.
Charge students more, say bosses BBC News (21/9/09)
Middle class university students ‘should pay more’ Telegraph (21/9/09)
Elite universities plan to cut UK student numbers amid funding drop Telegraph (20/9/09)
Fee rise must aid poor students BBC News (27/7/09)
Loans delay for 150,000 students continues Daily Mail (19/9/09)
‘No fee degrees’ university plan BBC News (8/7/09)
‘New market’ in education (podcast) BBC Today Programme (8/7/09)
Bring back tuition fees for middle class students Scotsman (11/9/09)
CBI advises raising university fees to £5,000 a year to tackle funding crisis Guardian (21/9/09)
University ‘way out of recession’ BBC News (8/9/09)
Schools secretary Ed Balls under fire over education cuts Mirror (21/9/09)
Students should pay more – CBI (video) BBC News (21/9/09)
Questions
- Why is education described as a merit good? Explain the characteristics and why it constitutes a market failure.
- Identify any externalities involved in higher education. Do they imply that the free market would led to a level of higher education that is above or below the social optimum?
- List the costs to society of a university education. (Think about opportunity cost).
- What are the arguments for (a) only the individual funding their university education (b) the government funding university education (c) a combination of both?
- Is it a reasonable policy to increase university fees? If so, should students receive loans to cover this increase? If not, what do you think is an alternative option to help this funding crisis?
Research published by the Institute for Fiscal Studies shows that graduates from wealthier family backgrounds earn significantly more than those from poorer backgrounds. If you compare the 20% of graduates from the richest backgrounds with the remaining 80%, the average earnings gap in 2012/13, 10 years after graduation, was £8000 per year for men and £5300 for women. Even when you take graduates in similar degrees from similar universities, there is still a gap of around 10% between those from richer and those from poorer backgrounds.