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Inflated Premium

August 22, 2013

Attending a Russell Group university (the organization of Britain's leading universities) does not boost graduate earnings any more than going to a former polytechnic, according to a government-commissioned study.

The research, carried out for Britain's Department for Business, Innovation and Skills, comes in the context of the Russell Group’s longstanding claims that its graduates boast higher earnings.

Graduates of the group of large research-intensive institutions do earn more than their peers – but this can be explained by their better A-level results (on pre-college tests) and family backgrounds rather than their university education, according to "The Impact of University Degrees on the Lifecycle of Earnings: Some Further Analysis," a report released last week.

The main finding of the study is that female graduates can expect to earn an extra £252,000 ($395,000) over their lifetimes, with their male peers £168,000 ($264,000) better off.

But unlike previous research into the graduate premium, the study also looks at which types of university students attend. Male graduates from Russell Group universities earn 36 percent more than non-graduates, whereas for those from post-1992 institutions the premium was 21 percent. The discrepancy between university types also exists for female students but is smaller, at nine percentage points.

However, according to one of the study’s authors, Ian Walker, professor of economics at Lancaster University, when controls were introduced "even in a very limited way" for A levels and students' fathers'  education, the earnings differential between Russell Group and polytechnic graduates became "statistically insignificant."

As the study puts it: "Even though our controls for ability are imperfect, the differences are now not statistically significant, suggesting that there are no statistically significant effects" resulting from the type of institution attended.

When controls are factored in, male Russell Group graduates earn two percentage points less than those from other pre-1992 universities (the former polytechnics), and only three percentage points more than post-92 alumni. For female students, the earnings discrepancy also shrinks to statistical insignificance when controlled for family and educational background.

Students from more prestigious universities earn more because they are "smarter graduates," not because they attended a "better teaching institution," Professor Walker said.

On its website, the Russell Group cites research carried out by the London School of Economics and Political Science, one of its members, stating that its graduates earn a wage premium of "up to" 10 percent over students from "modern" universities.

The "Impact of University Degrees on the Lifecycle of Earnings" also looks at the graduate premium by type of degree. Male graduates in arts and design and historical or philosophical subjects actually earn less than those with two or more A levels but no degree.

However, Walker stressed that this analysis had not factored in whether certain subjects generally accepted students with lower A-level results, adding that the sample sizes were small.

Medical-related and economics subjects yield the biggest premium for men and women, while law, business and management, mathematics, engineering, computer science and physical sciences degrees give graduates an earnings boost of at least 20 percent.

The report’s estimate for the graduate premium is much higher than the projection made in 2002 by the former Department for Education and Skills, which put the figure at £100,000 ($157,000).

Walker explained that this was because, unlike previous research, the latest study assumed that the premium for graduate skills would continue to rise in the future as it had done over the past two decades. Had the study not assumed this, the premium would be "around the £100,000 mark," he added.

Yu Zhu, reader in labor economics at the University of Kent, was Professor Walker’s co-author on the report.

 

 

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