Wage Inequality and Postgraduate Education - Stephen Machin, Centre for Economic Performance, UK

Wage Inequality and Postgraduate Education

Widening Participation to Postgraduate Education Conference, February 16 2012

Stephen Machin

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• Big increase in number of graduates. By 2011, 31 percent of theadult workforce have a degree.

• Despite the big increase in graduate supply, graduates have donevery well in the labour market. Demand has outstripped supply astheir relative wages have risen.

• The graduate group has become an increasingly diverse group,

Context

• The graduate group has become an increasingly diverse group,though educational inequality has risen with more graduates comingfrom richer backgrounds. Coupled with rising wage differentials, thisimplies falling social mobility.

• More pressure to go on and get postgraduate degrees? Has thepayoff for postgraduates changed? Also, for future, the issue of £9kundergraduate fees.

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Changes in Graduate Employment Shares and Relative Wages

Graduate Employment Shares Graduate Wage Differentials

2025

Gra

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ent

Sha

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(Per

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Graduate Employment Shares, 1980-2008

1.6

1.65

Gra

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e/N

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Gra

dua

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y W

age

Rat

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Graduate/Non-Graduate Earnings Ratios, 1980-2008

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Notes: Based on General Household Survey data. Notes : Graduate/non-graduate earnings differentials derived from General HouseholdSurvey data. Earnings for full-timers and the ratios are derived from coefficientestimates on a graduate dummy variable in a semi-log earnings equation controlling for age, age squared, gender and living in London.

05

1015

Gra

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e E

mpl

oym

ent

Sha

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(Per

cen

t)

1980 1990 2000 2008

1.4

1.45

1.5

1.55

Gra

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e/N

on-

Gra

dua

te W

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y W

age

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io1980 1990 2000 2008

HE Participation andGraduate Wage Inequality

HE Participation Graduate Wage Inequality

1.2

1.4

Log

Ear

ning

s R

atio

3040

50P

artic

ipa

tion

Per

cent

4

.81

Log

Ear

ning

s R

atio

1977 1980 1985 1990 1995 2000 2005 2009Year

Men Graduates Women Graduates

1020

30P

artic

ipa

tion

Per

cent

1981 1986 1991 1996 2001 2005 2009Year

API HEIPR

Notes: The Age Participation Index (API) is the ratio of the number of domiciled young people (aged less than 21) who are initial entrants to full time and sandwich undergraduate courses to the 18 to 19 year old GB population. The API was discontinued in 2001 and replaced by the Higher Education Initial Participation Rate (HEIPR) which has a different definition as it covers entrants to HE from a wider age range (ages 17 to 30).

Notes: 90-10 log weekly earnings gaps for full-time graduates.

Changes in Employment Shares By Graduate Education

Great Britain - Labour Force Survey

Men 1981 1986 1991 1996 2001 2006 2011

Undergraduate Degree or Higher 0.07 0.09 0.11 0.16 0.19 0.24 0.31

Of which:

Undergraduate Degree Only - - - 0.11 0.13 0.15 0.20

Postgraduate Degree - - - 0.05 0.06 0.09 0.10

Postgraduate share 0.31 0.32 0.38 0.32

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Notes: From Labour Force Surveys (annual for 1981, 1986 and 1991, quarterly thereafter). Employment shares are defined for people in work aged 26 to 60.

Women 1981 1986 1991 1996 2001 2006 2011

Undergraduate Degree or Higher 0.03 0.05 0.07 0.11 0.16 0.22 0.30

Of which:

Undergraduate Degree Only - - - 0.08 0.11 0.15 0.20

Postgraduate Degree - - - 0.03 0.05 0.08 0.10

Postgraduate share 0.27 0.31 0.36 0.33

Changing Wage Differentials By EducationMen 1996 2001 2006 2011 Change 2011-1996

Undergraduate Degree or Higher 0.390 (0.011) 0.410 (0.008) 0.406 (0.008) 0.426 (0.010) 0.036 (0.016)

Undergraduate Degree Only 0.374 (0.013) 0.375 (0.009) 0.375 (0.009) 0.391 (0.022) 0.017 (0.018)

Postgraduate Degree 0.424 (0.018) 0.482 (0.013) 0.456 (0.012) 0.497 (0.015) 0.072 (0.025)

Postgraduate/Undergraduate 0.050 (0.021) 0.107 (0.015) 0.081 (0.014) 0.105 (0.017) 0.056 (0.029)

Sample size 13731 23749 19892 11915

Women 1996 2001 2006 2011 Change 2011-1996

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Notes: The sample consists of full-time workers aged 26 to 60 in Britain Wage differentials are relative to intermediate A qualifications. Control variables included are: no qualifications, intermediate B, gender, age, age squared, London and white. Standard errors are in parentheses.

Women 1996 2001 2006 2011 Change 2011-1996

Undergraduate Degree or Higher 0.507 (0.014) 0.516 (0.009) 0.520 (0.009) 0.513 (0.012) 0.006 (0.020)

Undergraduate Degree Only 0.487 (0.017) 0.485 (0.010) 0.469 (0.011) 0.454 (0.013) -0.033 (0.022)

Postgraduate Degree 0.554 (0.024) 0.584 (0.015) 0.601 (0.013) 0.624 (0.016) 0.071 (0.031)

Postgraduate/Undergraduate 0.067 (0.027) 0.099 (0.016) 0.132 (0.015) 0.170 (0.018) 0.104 (0.035)

Sample size 7808 14626 13473 8305

Trends in Postgraduate/UndergraduateWageDifferentials

1012

1416

18T

rend

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PG

/CO

Per

cent

Wag

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iffer

entia

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7


68

10T

rend

s in

PG

/CO

Per

cent

Wag

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iffer

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1996 2001 2006 2011Year

PG/CO Differential, Men PG/CO Differential, Women

What Are The Skills and Tasks Implying Postgraduates Are More in Demand Than Undergraduates? [2006 Skills Survey, GB]

Skill/Job Task Postgraduates Undergraduate Only Gap (Standard Error) Regression Corrected Gap (Standard Error)

Cognitive SkillsLiteracy 4.067 3.763 0.304 (0.079) 0.299 (0.079)Simple Numeracy (Basic Arithmetic) 3.606 3.583 0.026 (0.094) 0.023 (0.093)Advanced Numeracy (Maths and Statistics) 3.004 2.715 0.289 (0.104) 0.285 (0.103)

Problem Solving SkillsThinking of Solutions to Problems 4.311 4.277 0.035 (0.064) 0.037 (0.064)Analysing Complex Problems 4.179 3.880 0.299 (0.083) 0.291 (0.083)

People SkillsMaking Speeches/Presentations 3.658 3.148 0.510 (0.095) 0.496 (0.095)

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Making Speeches/Presentations 3.658 3.148 0.510 (0.095) 0.496 (0.095)Teaching People 4.023 3.843 0.180 (0.086) 0.187 (0.085)Dealing With People 4.658 4.684 -0.026 (0.047) -0.017 (0.047)

Firm Specific SkillsKnowledge of Products/Services 3.817 3.831 0.014 (0.091) -0.002 (0.091)Specialist Knowledge or Understanding 4.704 4.548 0.156 (0.055) 0.158 (0.055)

Computer UsageUsing a Computer or Computerised Equipment 4.607 4.384 0.223 (0.068) 0.234 (0.068)Proportion That Do Not Use a Computer 0.019 0.045 -0.025 (0.014) -0.027 (0.014)Simple (General Purpose) Computer Users 0.074 0.109 -0.035 (0.021) -0.044 (0.021)Moderate Computer Users 0.428 0.486 -0.058 (0.035) -0.047 (0.034)Complex Computer Users 0.479 0.361 0.118 (0.034) 0.118 (0.033)

Routineness of JobPerforming Short Repetitive Tasks 2.689 2.890 -0.202 (0.073) -0.204 (0.073)Variety in Job 4.315 4.195 0.119 (0.061) 0.129 (0.061)

Sample Size 257 1095

Graduate Education by Family Income

HE Qualifications (by Age 33/34) and Family Income, British Birth Cohorts

1958 Birth Cohort, NCDS (in 1991) 1970 Birth Cohort, BCS (in 2004) Cross-Cohort Change

Lowest 20 Percent

Middle 60 Percent

Highest 20 Percent

HE Inequality

Lowest 20 Percent

Middle 60 Percent

Highest 20 Percent

HE Inequality

HE Inequality

Men

a) Pr[Degree] 0.10 0.15 0.30 0.20 (0.03) 0.10 0.18 0.38 0.28 (0.03) 0.08 (0.04)

b) Pr[Undergraduate Degree] 0.08 0.11 0.22 0.14 (0.02) 0.07 0.13 0.24 0.17 (0.03) 0.03 (0.04)

c) Pr[Postgraduate Degree] 0.02 0.04 0.08 0.06 (0.02) 0.03 0.06 0.15 0.12 (0.02) 0.06 (0.03)

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Women

a) Pr[Degree] 0.09 0.08 0.26 0.17 (0.03) 0.12 0.23 0.36 0.24 (0.03) 0.07 (0.04)

b) Pr[Undergraduate Degree] 0.06 0.06 0.18 0.12 (0.02) 0.08 0.14 0.25 0.17 (0.03) 0.05 (0.04)


• The rapid expansion of higher education and rising earnings returnsto graduate education have been a feature of the UK over the lasttwenty years or so.

• One consequence of HE expansion has been a concomitant increasein numbers of people going on to get a postgraduate degree.

• Despite increased supply of postgraduates, their relative wageshave risen (especially for women) implying employers increasingly

Concluding Remarks

• Despite increased supply of postgraduates, their relative wageshave risen (especially for women) implying employers increasinglydemand such qualifications.

• The private wage returns this generates is good for the individualsthemselves and for universities trying to recruit postgraduatestudents, but there are wider inequality and social mobility concernsthat should not be ignored. Includes possible supply reductions fromundergraduate fee increases.

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Lindley, J. and S. Machin (2011) Postgraduate Education and RisingWage Inequality, CEP Discussion Paper 1075, available athttp://cep.lse.ac.uk/pubs/download/dp1075.pdf.

Lindley, J. and S. Machin (2011) The Boom in PostgraduateEducation and Its Impact on Wage Inequality, Centrepiece, availableat http://cep.lse.ac.uk/pubs/download/cp351.pdf.

References

Lindley, J. and S. Machin (2012) The Quest for More and MoreEducation: Implications for Social Mobility, work in progress.

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