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The new research published looks at the link between earnings and students’ background, degree subject and university attended

Choose wisely: what and where you study DOES matter

New report from the Institute for Fiscal Studies shows impact of higher education and choices within the sector on earnings

Posted by Hannah Oakman | April 13, 2016 | Law, finance, HR

The new report from the Institute for Fiscal Studies also shows that graduates from richer family backgrounds earn significantly more after graduation than their poorer counterparts, even after completing the same degrees from the same universities.

The new research published looks at the link between earnings and students’ background, degree subject and university attended.

The research used anonymised tax data and student loan records for 260,000 students up to ten years after graduation. This is the first time a ‘big data’ approach has been used to look at how graduate earnings vary by institution of study, degree subject and parental income.

The data set includes cohorts of graduates who started university in the period 1998–2011 and whose earnings (or lack of earnings) are then observed over a number of tax years. In the paper, we largely focus on the tax year 2012/13.

Funded by the Nuffield Foundation, this work was carried out by researchers at the Institute for Fiscal Studies (IFS), Institute of Education (IoE), Harvard University and the University of Cambridge.

The average gap in earnings between students from higher- and lower-income backgrounds is £8,000 a year for men and £5,300 a year for women ten years after graduation in 2012/13.

It also shows that non-graduates are twice as likely to have no earnings as are graduates ten years on (30% against 15% for the cohort who enrolled in higher education in 1999 and observed in 2011/12).

The IFS study shows the need to improve career guidance provision not just for students choosing what subjects to do, or which university to go to, but also for those already in employment, in order to support in-work progression - Seamus Nevin, Institute of Directors

There are particularly big differences in earnings according to which university was attended. This is in large part driven by differences in entry requirements, but the numbers are “very striking”, according to the report.

For instance, more than 10% of male graduates from LSE, Oxford and Cambridge were earning in excess of £100,000 a year ten years after graduation in 2012/13, with LSE graduates earning the most. LSE was the only institution with more than 10% of its female graduates earning in excess of £100,000 a year, ten years on.

Director General of The Russell Group Dr Wendy Platt and Seamus Nevin, Head of employment and skills policy at the Institute of Directors

Commenting on the report, Seamus Nevin, Head of employment and skills policy at the Institute of Directors, said: “The IFS study shows the need to improve career guidance provision not just for students choosing what subjects to do, or which university to go to, but also for those already in employment, in order to support in-work progression. Poor in-work progression stifles employees’ careers and results in them taking longer to reach their earnings potential.

“In the UK education system, where learner choice plays an increasingly important role, it is ever more important for students, teachers, and parents to access good quality and timely information on the likely skills needed by employers in the future.

“A key issue is the long-term nature of the challenge. An individual starts to make choices in education that will affect the skills needed in their career as much as a decade before they enter the workplace, by which time technology and consumer preferences will have changed significantly.

“The digital revolution means that many people today, particularly younger generations, will work in jobs that do not exist yet, in industries that haven’t been created. Most will change jobs multiple times and brief periods of unemployment, for people at all levels, will become more common. These findings show that good university degrees have value, but also that we need to reform our education system to prepare for the coming age of automation.”

There are still far too many children from disadvantaged backgrounds underachieving at school and receiving poor advice and guidance - Russell Group's Dr Wendy Piatt

Russell Group Director General Dr Wendy Piatt added: “We welcome the IFS report’s finding that a university education provides an earnings premium for most graduates when compared with non-graduates.

“Ensuring our doors are wide open to talented and able students from all backgrounds really matters to Russell Group universities. And real progress has been made with big increases in the number of students from disadvantaged backgrounds attending our universities.

“But we are far from complacent. There are still far too many children from disadvantaged backgrounds underachieving at school and receiving poor advice and guidance. It will take time, commitment, and sustained action from a range of agencies to raise pupils' aspirations, increase attainment and improve the advice and guidance offered.'

These findings illustrate that across the higher education sector, attention must be focused on securing the best outcomes for all students, regardless of background - University Alliance's Prof Steve West

Also commenting on the findings, University Alliance Chair Professor Steve West added: “The report's most striking conclusion is the extent to which a graduate's family background remains a key factor determining their earnings. This needs to change. Universities have a role to play in addressing this inequality, ensuring that opportunities are open to all with the talent to succeed and that everyone can make the most of their potential. 

'These findings illustrate that across the higher education sector, attention must be focused on securing the best outcomes for all students, regardless of background.' 

To read the full report visit https://www.ifs.org.uk/uploads/publications/wps/wp1606.pdf

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