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

Widening Participation to Postgraduate Education Conference,February 16 2012 Wage Inequality and Postgraduate Education Stephen Machin 1

Context• 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,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. 2

Changes in Graduate Employment Shares and Relative Wages Graduate Employment Shares Graduate Wage Differentials Graduate Employment Shares, 1980-2008 Graduate/Non-Graduate Earnings Ratios, 1980-2008 1.65 25 Graduate/Non-Graduate Weekly Wage Ratio Graduate Employment Shares (Percent) 1.6 20 1.55 15 1.5 10 1.45 5 1.4 0 1980 1990 2000 2008 1980 1990 2000 2008Notes: Based on General Household Survey data. Notes : Graduate/non-graduate earnings differentials derived from General Household Survey data. Earnings for full-timers and the ratios are derived from coefficient estimates on a graduate dummy variable in a semi-log earnings equation controlling f or age, age squared, gender and living in London. 3

HE Participation and Graduate Wage Inequality HE Participation Graduate Wage Inequality 1.4 50 40 Participation Percent Log Earnings Ratio 1.2 30 1 20 .8 10 1981 1986 1991 1996 2001 2005 2009 1977 1980 1985 1990 1995 2000 2005 2009 Year Year API HEIPR Men Graduates Women GraduatesNotes: The Age Participation Index (API) is the ratio of the number of domiciled Notes: 90-10 log weekly earnings gaps for full-time graduates.young people (aged less than 21) who are initial entrants to full time and sandwichundergraduate courses to the 18 to 19 year old GB population. The API wasdiscontinued in 2001 and replaced by the Higher Education Initial ParticipationRate (HEIPR) which has a different definition as it covers entrants to HE from awider age range (ages 17 to 30). 4

Changes in Employment Shares By Graduate Education Great Britain - Labour Force SurveyMen 1981 1986 1991 1996 2001 2006 2011Undergraduate Degree or Higher 0.07 0.09 0.11 0.16 0.19 0.24 0.31Of which: Undergraduate Degree Only - - - 0.11 0.13 0.15 0.20 Postgraduate Degree - - - 0.05 0.06 0.09 0.10Postgraduate share 0.31 0.32 0.38 0.32Women 1981 1986 1991 1996 2001 2006 2011Undergraduate Degree or Higher 0.03 0.05 0.07 0.11 0.16 0.22 0.30Of which: Undergraduate Degree Only - - - 0.08 0.11 0.15 0.20 Postgraduate Degree - - - 0.03 0.05 0.08 0.10Postgraduate share 0.27 0.31 0.36 0.33Notes: From Labour Force Surveys (annual for 1981, 1986 and 1991, quarterly thereafter). Employment shares are defined for people in work aged 26 to 60. 5

Changing Wage Differentials By EducationMen 1996 2001 2006 2011 Change 2011-1996Undergraduate 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 11915Women 1996 2001 2006 2011 Change 2011-1996Undergraduate 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 8305Notes: 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. 6

Trends in Postgraduate/UndergraduateWage Differentials 18 Trends in PG/CO Percent Wage Differentials 6 8 10 12 14 16 1996 2001 2006 2011 Year PG/CO Differential, Men PG/CO Differential, WomenNotes: 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. 7

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)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 8

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 Middle 60 Highest 20 HE Lowest 20 Middle 60 Highest 20 HE HE Percent Percent Percent Inequality Percent Percent Percent Inequality InequalityMena) 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)Womena) 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)c) Pr[Postgraduate Degree] 0.02 0.02 0.07 0.05 (0.02) 0.04 0.08 0.12 0.08 (0.02) 0.03 (0.04)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. 9

Concluding Remarks• 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 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. 10

ReferencesLindley, 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.Lindley, J. and S. Machin (2012) The Quest for More and MoreEducation: Implications for Social Mobility, work in progress. 11

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

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