Family wealth has more impact than degree on earnings

Graduates from richer family backgrounds earn significantly more after graduation than their poorer counterparts, even after completing the same degrees from the same universities, according to new research*.

Those studying medicine and economics earn far more than those studying other degree subjects, even taking their higher A-level achievement into account.

“This research has shown the extent of the inequality in graduate earnings, even between graduates from similar institutions and taking the same subjects,” the researchers conclude.

“The main finding is that graduates’ family background, and specifically whether they come from a lower- or higher-income household, continues to influence graduates’ earnings long after graduation, even when they experience the same higher education.”

The research – which was funded by the Nuffield Foundation, and carried out by researchers at the Institute for Fiscal Studies or IFS, UCL Institute of Education, Harvard University and the University of Cambridge – also found considerable variation in graduates’ earnings depending on degree subject or the university attended.

While subjects such as medicine and economics have particularly high earnings relative to other subjects, graduates in creative arts earn relatively less.

“To the extent that expansion of higher education may draw in students from poorer backgrounds, it is also crucial that we understand the implications of the degree choices that these students will make for their economic success,” the paper concludes.

The research shows the potential value of providing useful information that might inform students’ choice of degree, and particularly to assist students from more disadvantaged backgrounds who might find it harder to navigate the higher education system.

While many other factors, such as intrinsic interest, will drive student choice, the findings suggest it is important to ensure there is adequate advice and guidance given that graduates’ future earnings are likely to vary depending on the institution and subject they choose, with implications for social mobility.

'Big data’ approach

The research looked at the link between earnings and students’ background, degree subject and university attended. It used anonymised tax data and student loan records for 260,000 students up to 10 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 England in the period 1998–2011 and whose earnings (or lack of earnings) were then observed over a number of tax years. In the paper, researchers largely focus on the tax year 2012-13.

Dame Julia Goodfellow, president of Universities UK – the vice-chancellors’ body – and vice-chancellor of the University of Kent, said: “Across all universities and courses, graduates in the UK are still in a substantially better position in terms of obtaining jobs and, on average, they continue to earn substantially more than non-graduates.

“It is clear, however, that the role of family background and networks still play a role in how some graduates perform and progress in their careers.”

“It is important also that all young people are given access to high-quality advice and guidance about higher education and career options.”

Professor Steve West, chair of University Alliance, whose institutions educate one in four students in the UK, said: "This major study, the first of its kind, demonstrates the enduring value of a degree, measured in terms of the difference between graduate and non-graduate earnings a decade after leaving university.

"However, 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."

Nick Hillman, director of the Higher Education Policy Institute, said: “The arguments in the IFS paper are largely intuitive and already well known. Graduates do better than non-graduates. Male graduates earn more than female graduates. Graduates from more famous universities earn more than others. Richer students go on to earn more than poorer ones. Medical students go on to earn more than creative arts students.

“But the research is still very important and very welcome because it adds weight and colour to what we know about social mobility.

“The real challenge is how to set the new findings into their true context. For example, just because nurses earn less than doctors does not mean nursing courses are a waste of money. The next stage must be to explain such differences because many of them are entirely reasonable.”

Improving social mobility

Dame Julia Goodfellow said universities offer advice, work experience, sandwich degree courses, degree apprenticeships and job placements to give students direct experience and access to employers.

She said some employers are also taking steps to address the impact of social background through 'CV-blind' recruitment and outreach work.

Universities UK established a Social Mobility Advisory Group earlier this year to provide advice to government and support for English universities to improve access and long-term success for under-represented groups in higher education. It will look at many of the issues discussed in this report. The group will report its recommendations later this year, presenting them to government.

“Graduate earnings cannot however be used as the sole measure of success. As the report points out, there are now major regional differences in terms of average wages and many graduates choose to stay and work in their local regions.

“Some universities also train graduates for important jobs in nursing, the public sector and the arts, jobs we know that traditionally pay less on average but make a critically important contribution to society and the economy.”

Data challenges

The researchers set out to document and explain some of the differences between graduates’ earnings. They explored: To what extent is the observed variation driven just by prior attainment as opposed to course or institution of study; and to what extent does family background influence future earnings even given course and institution?

“Answers to these questions matter to students choosing a degree as well as to government, universities and employers,” the authors say. “Of course, students go to university for many reasons other than for pecuniary gain and many graduates do socially valuable jobs that are not necessarily higher paying. However, pay and employment are both aspects that students do consider and hence information on graduates’ earnings is important.”

Investigating how graduates’ earnings vary by institution of study was particularly challenging to research due to inadequate data. The researchers used a new database that, for the first time, provides administrative longitudinal data on English graduates’ annual earnings.

Specifically, the researchers link two complex administrative data sets, namely data from the Student Loans Company and from HM Revenue and Customs PAYE and self-assessment databases.

Nick Hillman had arranged for the researchers to receive the data from HM Revenue and Customs while special adviser to the Minister for Universities and Science (2010-13).

* Jack Britton, Lorraine Dearden, Neil Shephard and Anna Vignoles. How English domiciled graduate earnings vary with gender, institution attended, subject and socio-economic background. Institute for Fiscal Studies, 13 April 2016.