Supplementary memorandum submitted by
Professor David Eastwood, Chief Executive, Higher Education Funding
Council for England (HEFCE)
GRADUATE EARNINGS
At my appearance before the Education and Skills
Select Committee on 29 January 2007 the issue of the graduate
earnings premium was raised. I quoted a figure of around £150,000
which led you to mention a figure of £400,000 that Ministers
had used previously. I promised to let you have a note on authoritative
sources.
The figure of £400,000 was cited in Parliamentary
debates and written answers during the period 2001 through to
2003 primarily by Margaret Hodge, the then Minister for Lifelong
Learning and Higher Education. We have been advised by the Department
for Education and Skills (DfES) that this estimate was based on
an analysis of the Labour Force Survey (LFS) which added up the
earnings gap between graduates and the rest of the population
over a working lifetime, on average. Whilst this can be described
as a "graduate premium", it is a somewhat simplistic
measure based on gross income which takes no account of personal
characteristics or earnings growth and perhaps most importantly,
does not represent the additional earnings in present value terms.
Since then, the DfES and others have carried
out more sophisticated analyses of the LFS and the present "official"
statement on this matter from the DfES is:
"Over the working life, we believe the average
graduate premium remains comfortably over £100,000 after
tax and in today's valuation, compared to what a similar individual
would have earned if they just had A levels".
In February 2007 Universities UK published a
report of work carried out by PricewaterhouseCoopers (PwC) The
Economic Benefits of a Degree which is available at:
http://bookshop.universitiesuk.ac.uk/downloads/research-gradprem.pdf
In this report, PwC estimate the average additional
gross lifetime earnings of graduates to be in the region of £160,000.
The report also considers the returns to different subjects and
includes a lengthy bibliography of other relevant work in this
field.
So, to conclude, the £400,000 figure dates
from 2001 and is a very broad and simple estimate in gross cash
terms that compares graduate earnings with the earnings of the
rest of the population over a working lifetime, on average. This
includes a very large number of individuals who are not qualified
to go onto study at higher education level. More recent studies
quote figures above £100,000 and in the region of £160,000.
These provide more refined estimates by comparing the earnings
of graduates with those in the working population who completed
their education at A level. They also discount future additional
earnings to net present value. However, it should be appreciated
that even these more sophisticated estimates involve judgements
and assumptions about what graduates would have earned had they
not entered higher education, and about future earnings of both
graduates and non-graduates.
March 2007
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