The graduate market and salaries

Political stories come and go, although it does not always appear to be the case. The government’s controversial target of having 50% of all young people aged under 30 to take part in higher education by 2010, and the introduction of top-up fees, had generated some of the most heated educational debates in recent years. Whilst discussions on these topics waned over the last year, the debates about the financial returns of obtaining a degree continue and have been all the more intense due to the imminent arrival of top-up fees. In this article, we review the latest first degree destination figures and some of the evidence concerning the financial and non-monetary benefits of a university education.

When the first destination data for new graduates is published every year, unemployment is seen as one of the main indicators of the state of the graduate job market. The good news from the latest Destinations of Leavers from Higher Education (DLHE) survey was that unemployment for 2004 first degree graduates stood at 6.1% six months after graduation, down from 6.6% for the 2003 cohort. At the same time, the employment rate (including working and studying) went up slightly from 71.7% for 2003 graduates to 72% for the 2004 cohort, whilst the percentage going on to further studying or training alone rose from 13.9% to 14.1%.

These positive results from the DLHE survey were also borne out in the findings of an Association of Graduate Recruiters (AGR) employer survey. The latter study revealed that graduate vacancies increased by 15.5% in the 2003-04 recruitment season, compared to the numbers recruited a year ago. However, it is important to bear in mind that the study covered 223 large employers who reported a total of 13,924 graduate vacancies between them, and thus, represented only around 10% of the total number of jobs for new graduates.

For full-time first degree 2004 graduates who entered full-time employment and had provided salary information in the DLHE survey, the average salary was £17,029, an increase of 3.9% from £16,393 for the 2003 cohort. Table 1 gives the salary breakdown by region. Graduates working in London commanded the highest average salary of £19,973, which was 15.1% above the average figure for the next highest paying known region in the UK, the South East. In fact, the average salary for graduates working in London was so high compared to other regions that the South East is the only other UK region with an average salary which was above the national figure.

London and the South East were also the two most popular locations of work, accounting for 18.4% and 12% respectively of 2004 graduates employed in the UK, and younger graduates were more likely than older graduates to work in these regions. The third employment hotspot was the North West, with 11% of UK employed 2004 graduates working there.

Using the graduate job classifications developed for the project Researching Graduate Careers Seven Years On, our analysis of the DLHE data reveals that two in three graduates working in the UK were in a graduate-level occupation six months after graduation. Although this means one in three graduates was in a non-graduate occupation at the start of their career, it is important to remember that graduates do need time to settle down in the labour market and initial underemployment is not a reliable indicator of longer term career outcomes.

Using the government’s Labour Force Survey data, we look at the distribution of graduates in graduate-level occupations by age. The results are shown in Table 2, together with figures corresponded to those who reported their highest educational qualification as GCE A-level or equivalent. The figures indicate that although a relatively large percentage of young graduates were employed in non-graduate occupations, the proportion became a lot less for older graduates [a].

In addition, the data show that at all ages, graduates were much more likely than those with just A-levels to be in higher quality occupations. At age 21-25, non-graduates were twice as likely than graduates to be in non-graduate jobs, and this increased to four times as likely at age 26-30 and five times at age 31-35.

Back in 2001, the government reported that graduates’ lifetime earnings would be £400,000 greater than those who ended their full-time education with A-levels. Recent estimates have been more conservative. According to a study from the University of Wales Swansea, after taking into accounts the costs of acquiring a degree (foregone earnings and tuition costs), male graduates can expect to see their lifetime earnings (net of taxes) increased by £141,539 over similar men who finished their education with two or more A-levels. The corresponding figure for women is £157,982, reinforcing the findings from other studies that women benefit even more than their male counterpart from a university education.

The large differences between the estimated government’s figure and Swansea’s figures was reportedly due to the former being derived using evidence gathered before much of the recent expansion in student numbers and, as such, may not truly reflect the current labour market circumstances facing graduates.

The financial benefits of a degree are, perhaps unsurprisingly, subject dependent. Maths and computing degrees were found to offer the greatest increase in lifetime earnings for male graduates, whilst a degree in education represents the highest returns for women. The Swansea report concluded that the cost of gaining a degree is far less than the potential increase in lifetime earnings for the majority of graduates.

Getting a degree is, of course, not only about money. Writing in Graduate Market Trends, Mark Wilberforce from the Department of Education and Skills, summarises some of the non-monetary benefits of a university education. Apart from being in higher quality jobs than non-graduates, as mentioned earlier, graduates also:

• Enjoy better health, by being less likely to smoke, more likely to exercise, and less prone to depression.
• Tend to have a greater involvement with their child’s education.
• Are more influential in the community, by being more likely to vote and participate in voluntary activities.
• Show a more positive attitude towards diversity and equal opportunities.
• Form a source of wider innovation and economic growth.

In addition to the above, it is thought that many of the other more potent benefits of a higher education may be intangible or more subtle.

[a] Each respondent in the LFS is surveyed five times over an approximately 12 months period. Thus, it is not a longitudinal survey following the same respondent for a number of years. The analyses here have not taken into account when the respondents obtained their highest qualification. For example, a graduate aged 35 may have graduated a year ago when he was 34 or anytime over the last 15 years or so.

[b] Graduate occupations comprise traditional, modern, new, and niche graduate occupations. For more information about the job classifications, see SOC (HE): A classification of occupations for studying the graduate labour market, Researching Graduate Careers Seven Years On research paper no.6, Peter Elias and Kate Purcell, March 2004. http://www2.warwick.ac.uk/fac/soc/ier/research/current/7yrs2/

• Visit the How much could I earn? section of this website.
• Graduate Market Trends, a quarterly review of the graduate labour market, is published by the Higher Education Careers Services Unit (HECSU), the charity arm of Graduate Prospects.
• Seven Years On: Graduate Careers in a Changing Labour Market, Peter Elias (Warwick Institute for Employment Research) and Kate Purcell (Employment Studies Research Unit, University of the West of England), June 2004. The study is funded by the Economic and Social Research Council (ESRC) and the Higher Education Careers Services Unit.