Growth in Within Graduate Wage Inequality: The Role of Subjects, Cognitive Skill Dispersion and Occupational Concentration

UK graduate wage inequality has increased over the previous three decades. This paper demonstrates that most of the growth has occurred within degree subjects, with the largest occurring in non-STEM subjects. The paper therefore investigates two potential explanations. The first is the increase in the variance of childhood cognitive test scores amogst graduates in the same subject. This increase differs across subjects, and is again in the non-STEM subjects where the variance of test scores has increased the most, especially during the second period of rapid higher education expansion in the 1990s. The second potential explanation explored is the fall in the occupational concentration of subjects. Graduates of some subjects (like Medicine and Education) are highly concentrated into only a few jobs whereas others are much more widely dispersed. Generally, all subjects have become more widely dispersed across occupations over time, but some more so than others. The paper then shows that both of these factors have played a role in explaining growing graduate wage inequality within subjects, though the largest is by far from the widening in the variance of test scores. The path of graduate wage inequality would have been relatively flat without the accompanying increase in the variance of cognitive skills.