Higher degree classes are associated with substantially higher earnings

New research at the Institute for Fiscal Studies (IFS), commissioned by the Department for Education, examines the financial benefit associated with different degree classifications. Even after controlling for student characteristics, higher degree classes are associated with substantially higher earnings:

• The average premium for gaining a first class degree over an upper second (2.1) is 4% for women and 7% for men.
• The penalty for getting a lower second (2.2) as opposed to a 2.1 is 7% lower earnings for women and 11% lower earnings for men.
• Obtaining a lower class (below 2.2) degree is associated with 15% lower earnings for women and 18% lower earnings for men, again compared with a 2.1.

For the first time, using detailed administrative data from the Department for Education’s Longitudinal Education Outcomes (LEO) dataset, we have also been able to investigate how the age 30 earnings premiums from achieving higher degree classifications vary by subject and university selectivity.

Degree class seems to matter most for those attending the most selective universities and studying subjects where future earnings are highest. This suggests that access to ‘elite jobs’ is governed by what you study, where you study and how well you do at university. 

Other key findings include:

• Payoffs for a higher class degree vary hugely by subject. For some subjects, degree class matters a lot for earnings, while for others it appears not to matter at all. For men and women studying law or economics, getting a 2.2 rather than a 2.1 is associated with more than 15% lower earnings, whereas there is no significant difference for those studying education or English.
• Achieving at least a 2.1 has a much bigger payoff at more selective universities. Controlling for observable characteristics, both men and women who obtain a 2.2 from the most selective universities (Oxford, Cambridge, Imperial College London and the London School of Economics) earn 20% less on average at age 30 than those who achieve a 2.1, compared with around 6% for women and 8% for men who got lower second class degrees from the least selective universities.
• There are stark gender differences in the payoff to achieving a first class degree at a very selective university. At the most selective universities, the average payoff to a first class degree versus a 2.1 is near zero for women, but very large at around 14% for men. This suggests that fewer high-achieving women go on to high-earning careers.
• Despite a significant, long-term trend towards higher degree classes awarded in all subjects and at all levels of university selectivity, we do not find large changes in degree class premiums over time. This is consistent with students engaging more successfully with the material they are being taught, but could also be explained by changes in institutions’ assessment practices resulting in a general lowering of academic standards. Very large increases in the proportion of higher degree classes in recent years may lead to changes in degree class premiums for the most recent graduates. But given their age, we cannot look directly at this yet.

Jack Britton, Associate Director at IFS, Reader at the University of York and a co-author of the report, said:

‘This report provides useful information to students about the likely financial rewards to performing well in their degrees. Across all degrees, the gap in earnings between getting a 2.1 and getting a 2.2 is much more important than the gap between getting a first and getting a 2.1. In fact, for many subjects, the difference between a first and a 2.1 is inconsequential for earnings. However, for others, such as economics, law, business, computing and pharmacology, it is substantial.’

Ben Waltmann, Senior Research Economist at IFS and a co-author of the report, said:

‘The findings imply that degree classification may matter as much as university attended for later life earnings. Other things equal, going to a more selective university is good for future earnings, and the fact that few students from disadvantaged backgrounds attend the most selective universities is a barrier to social mobility. But that being said, many graduates who get a 2.2 from a highly selective university might have got a higher-paying job had they attended a slightly less selective university and got a 2.1. Prospective students, parents and policymakers should take note.’