1) There has been a big increase in the number of graduates in the UK workforce, rising to 31% by 2011, though educational inequality has also risen with more graduates coming from wealthier backgrounds. 2) Despite rising graduate numbers, their wages have increased relative to non-graduates due to strong demand. There is also increasing pressure to obtain postgraduate degrees for higher earnings. 3) Postgraduate degree holders have seen even larger wage increases than those with only undergraduate degrees. However, rising educational inequality and wage differentials could threaten social mobility in the future.

1. Widening Participation to Postgraduate Education Conference,
February 16 2012
Wage Inequality and
Postgraduate Education
Stephen Machin
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2. Context
• Big increase in number of graduates. By 2011, 31 percent of the
adult workforce have a degree.
• Despite the big increase in graduate supply, graduates have done
very well in the labour market. Demand has outstripped supply as
their relative wages have risen.
• The graduate group has become an increasingly diverse group,
though educational inequality has risen with more graduates coming
from richer backgrounds. Coupled with rising wage differentials, this
implies falling social mobility.
• More pressure to go on and get postgraduate degrees? Has the
payoff for postgraduates changed? Also, for future, the issue of £9k
undergraduate fees.
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3. 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 2008
Notes: 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.
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4. 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 Graduates
Notes: 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 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).
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5. 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
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
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.
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6. Changing Wage Differentials By Education
Men 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
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
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.
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7. 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, Women
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.
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8. 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 Skills
Literacy 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 Skills
Thinking 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 Skills
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 Skills
Knowledge 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 Usage
Using 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 Job
Performing 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
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9. 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 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)
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)
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.
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10. Concluding Remarks
• The rapid expansion of higher education and rising earnings returns
to graduate education have been a feature of the UK over the last
twenty years or so.
• One consequence of HE expansion has been a concomitant increase
in numbers of people going on to get a postgraduate degree.
• Despite increased supply of postgraduates, their relative wages
have risen (especially for women) implying employers increasingly
demand such qualifications.
• The private wage returns this generates is good for the individuals
themselves and for universities trying to recruit postgraduate
students, but there are wider inequality and social mobility concerns
that should not be ignored. Includes possible supply reductions from
undergraduate fee increases.
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11. References
Lindley, J. and S. Machin (2011) Postgraduate Education and Rising
Wage Inequality, CEP Discussion Paper 1075, available at
http://cep.lse.ac.uk/pubs/download/dp1075.pdf.
Lindley, J. and S. Machin (2011) The Boom in Postgraduate
Education and Its Impact on Wage Inequality, Centrepiece, available
at http://cep.lse.ac.uk/pubs/download/cp351.pdf.
Lindley, J. and S. Machin (2012) The Quest for More and More
Education: Implications for Social Mobility, work in progress.
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