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Research shows decline in ‘graduate premium’ less pronounced for 1st and 2:1 degrees

Graduates with a first or upper second class degree earn more, relative to non-graduates, than their peers with lower class degrees.

Researchers from HESA and the Department of Economics at Warwick University compared the pay of graduates with non-graduates. Given the growth in the proportion of graduates with a first or upper second class award, they looked for changes in the returns to a first or upper second class degree compared with lower grades. They found graduates born in 1970 who had a first or upper second class degree earned 20% more than non-graduates at age 26, compared to a graduate premium of 14% for those with a lower second class degree or below.

The researchers had previously found that the graduate premium has reduced over time. The same comparison for people born in 1990 found that graduates with a first or 2:1 earned 14% more than non-graduates at age 26, while the return to a 2:2 or lower class degree was only 3%.

The study found that the overall reduction in the return to a degree was largely explained by stronger pay growth in non-professional occupations than in professional jobs. They suggest that the accompanying increase in the gap between the returns to higher and lower degree classifications, from 6 percentage points to 11 percentage points, may relate to workplace recruitment focussing on graduates with at least an upper second class degree.

The research also compared the returns to a first with the returns to a 2:1, and the returns to a 2:1 compared to a 2:2. The tentative results, based on a small number of first-class degree holders born in 1970, found that the relative benefit of having a first over having a 2:1 has decreased by up to 3 percentage points. The study’s authors note that this may be due the long-term trend of more graduates being awarded a first class degree. Meanwhile the relative benefit of a 2:1 over a 2:2 has increased by up to 8 percentage points.

The research used data from the British Cohort Study (which follows a sample of individuals born in 1970), Next Steps (surveying those born around 1990), the Labour Force Survey, and the Longitudinal Destinations of Leavers from Higher Education survey. The research looked at graduates (workers holding a first degree qualification) and non-graduates (holding at least GCSE or A level qualifications) in full-time employment. The findings are published online on the HESA website and consider the policy implications of the reduced graduate premium for 2:2 degrees.

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