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New research shows reduction in the ‘graduate premium’

Graduates born in 1990 earned 11% more than non-graduates at age 26, compared to the 19% graduate premium enjoyed by graduates born in 1970. The change in the percentage by which the hourly pay of graduates exceeds that of non-graduates mainly impacted on those born after 1987.

Joint research from HESA and the Department of Economics at Warwick University analysed how the financial return to a degree has changed across two decades in which there has been a large expansion in higher education participation. The study used data from the Labour Force Survey, the British Cohort Study for the 1970 birth cohort and the Next Steps dataset for the 1989/90 birth cohort.

Further research will look at cohorts born after 1990 to determine whether the recent fall is a short-term dip or the beginning of a more general decline. As graduates tend to enjoy steeper growth in their earnings over time compared to non-graduates, the researchers also plan to continue the study as graduates progress through their careers.

Tej Nathwani, econometrician at HESA said “Whilst the benefits of a degree are not solely financial, higher education remains a significant investment decision for young people. Changes in fees and funding have resulted in increased reliance on student loans, which are now treated differently in public sector finances. Consequently, graduate earnings continue to be an important area of research in higher education. This study adds to the available information about the financial benefits that individual students can expect from a degree. We hope to explore this area further in forthcoming years, as new data is released into the public domain.”

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