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Graduate Earnings Premia in the UK : Decline and Fall?

Author

Listed:
  • Boero, Gianna

    (Department of Economics, University of Warwick)

  • Nathwani, Tej

    (Higher Education Statistics Agency)

  • Naylor, Robin

    (Department of Economics, University of Warwick)

  • Smith, Jeremy

    (Department of Economics, University of Warwick)

Abstract

A long-standing puzzle in the economics of education concerns the observed constancy of the average earnings premium for a degree despite a prolonged period of substantial growth in the share of graduates in the working population in the UK. Focusing on birth cohorts between 1970 and 1990, we produce evidence of a recent decline in the earnings premium for graduates over non-graduates by age 26. For those born in 1990, we estimate an average graduate earnings premium of 10%, contrasting with an estimate of 17% for the 1970 birth cohort. We also find a substantial increase in dispersion around the average premium according to class of degree awarded. Combined with a falling average, this has left the earnings of 1990-born graduates awarded lower degree classes only 3% above that of non-graduates. Among the 1970-born cohort, the equivalent earnings premium was 14%. We suggest that this precipitous fall is consistent with a ‘double-scarring’ effect associated with the combination of increased higher education participation and a rise in the proportion of graduates awarded an upper honours degree over the span of the two cohorts.

Suggested Citation

  • Boero, Gianna & Nathwani, Tej & Naylor, Robin & Smith, Jeremy, 2021. "Graduate Earnings Premia in the UK : Decline and Fall?," The Warwick Economics Research Paper Series (TWERPS) 1387, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1387
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    References listed on IDEAS

    as
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    4. Ireland, Norman & Naylor, Robin A. & Smith, Jeremy & Telhaj, Shqiponja, 2009. "Educational Returns, ability composition and cohort effects : theory and evidence for cohorts of early-career UK graduates," The Warwick Economics Research Paper Series (TWERPS) 906, University of Warwick, Department of Economics.
    5. Ashworth, Jared & Ransom, Tyler, 2019. "Has the college wage premium continued to rise? Evidence from multiple U.S. surveys," Economics of Education Review, Elsevier, vol. 69(C), pages 149-154.
    6. Richard Blundell & Lorraine Dearden & Barbara Sianesi, 2005. "Evaluating the effect of education on earnings: models, methods and results from the National Child Development Survey," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 168(3), pages 473-512, July.
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