Bank of England says graduates can still expect to earn more than those without degrees but supply has exceeded demand
The rapid expansion of university education is affecting the earning power of graduates, according to a Bank of England study showing the value of a degree has declined sharply over 20 years.
Threadneedle Street said those leaving university could expect to earn more over their working lives than people without academic qualifications, but that the wage premium had been cut from 45% to 34% between 1995 and 2015.
The bank said one explanation was that demand for graduates had not kept pace with supply. One in three workers now has a degree, up from one in 10 in 1985. Another was that the large increase in people studying at university meant it was harder to use a period of higher education to pick out really talented individuals. Over the same period, the wage premium for A-levels and GCSEs also fell, but by far less, and rewards for long service were also lower than a generation ago.
A survey by the Chartered Management Institute showed that three in five parents would now prefer their offspring to follow a degree apprenticeship, which allows students to complete a full honours degree and work with an accredited employer, while earning and not paying fees.
The Bank of England’s findings on graduate earnings came in a chapter from its forthcoming quarterly bulletin that seeks to explain why wage growth has been so weak as the economy has recovered from the deep slump of 2008-09.
The bank said the increased number of graduates and the shift towards high-skilled jobs had pushed up earnings growth even though the wage premium for graduates had declined. Higher levels of education had pushed up wages by 0.4 percentage points a year on average. However, so-called compositional effects had worked in the opposite direction in both 2014 and 2015, due to lower-skilled employees returning to the workforce. This had dragged wage growth by around 0.75 percentage points and helped explain why wage growth is running at around 2%.
“More recent data for the fourth quarter of 2015 show that compositional effects have started to subside. The drag on wage growth is likely to dissipate as the labour market normalises and the effect on wages of changes in the composition of the workforce returns to normal.”