The value of a university education? It’s a question of degree

Civitas, 12 May 2011

Today the BBC reported on research, carried out by the Centre for Economics and Business Research, which indicated that more graduates were taking low-skilled jobs. If the research is correct, this could beg the question: will a £9,000-a-year degree be worth it?

The Government clearly thinks so. A spokesman for the Department for Business, Innovation and Skills said:

‘Not only do employers prize the highly-developed skills and talents graduates can bring to their businesses, but research has shown that graduates earn, on average, more than £100,000 more over their working life.’

Yet with 40% of this years’ graduates un-or-underemployed, and 55% of the next cohort of university leavers facing a similar situation, can the average graduate expect to earn the £100,000 ‘graduate premium’?

From 2012-13 the average university student can expect to pay £8,820 a year for their education with only 14 out of 57 universities planning on charging below £9,000, according to the Times Higher Education Supplement. The Government has been quoting a ‘graduate premium’ (that is the increase in life-time earnings) of around £100,000 since 2002, particularly emphasising it in 2006 when university fees were last raised. This figure is drawn from a number of reports, but the most recent were two carried out by PWC in 2005 and 2006. Both reports come to similar conclusions:

• The gross (not taking into account the costs of a degree) premium of obtaining a degree is around £160,000 on average.
• The net premium is between £120,000-130,000.
• The increase in fees in 2006 actually increased the earnings premium of a degree from 12% to 13.2%. This is due to the fact that the Exchequer was shouldering more of the cost through deferred payment and an increase in grants for poor students.

It would appear that it will still be worth obtaining a degree when fees go up nearly three-fold in 2012-13. Not necessarily, or at least the figures above require some serious caveats.

First, there is the fact that different degrees have different premiums. While medicine graduates can expect to earn £340,315 more in their life-time, an arts graduate can only expect to earn an extra £34,494. Some of the other subjects that earn below the average premium level are: European languages (£96,281), humanities (£51,549) and biosciences (£111,269).

Second, these are gross figures and do not take into account the costs of doing a degree, both in terms of incurred costs (paying for it and living expenses) and earnings forgone while studying. The Telegraph, working with ‘HomesForStudents.co.uk’ recently published some figures which looked at which universities would cost the most, taking into account living costs as well as fees:

• London School of Economics: £52,319
• University of Oxford: £48,607
• University of Sheffield: £47,492
• University of Liverpool: £46,870

This is just a selection but the results show that while total costs may vary, everywhere they will be significantly pushed up by living costs.

The Result of a cost-benefit analysis for a degree is not looking so rosy now. An average European language graduate at Liverpool University can expect to make an extra £49,411 over the course of their lifetime, nearly 50% less than they would be making before costs were factored in. More worrying is that if these figures are correct, the average arts graduate at the university of Sheffield could expect to earn £12,998 less over the course of their life-time as a result of doing a degree. It should also be mentioned that these calculations do not include the costs of income forgone while studying.

Third, and perhaps most important, is the fact that research which attempts to calculate the graduate premium from past data (as all such studies do) is undermined by the fact that the premium is based on future supply and demand. The 2006 PWC study concluded that there had not been a decrease in the graduate premium over time, as higher education expanded. This, the report ventured, was because demand for graduates had kept pace with supply. Can this be expected to remain the case in the future?

This is the most important and difficult question. However I would venture one thing. If graduates keep finding themselves un-or-underemployed then this indicates that supply has outstripped demand. This would, in turn, indicate that the British economy requires different skills than those being supplied by graduates. While I could not possibly calculate demand for graduates in the future I would hazard a guess that it would be better for the British education system to produce employees with a wide range of employable skills. At present the British system is too uniform: for too many children the goal is university, anything else being seen as a failure. The reality is that complex economies require a wide variety of skills; artistic, academic, technical. For too long in this country we have held onto a dogmatic attraction towards an academic university education. The future prosperity and employability of our young people requires that the Government rethink this – a more diverse education system must be developed. The supposedly undisputed benefits of a university education are in serious doubt. Now is the time for change.