Subject and institution choice more important then family background for future earnings

Analysis by the Higher Education Policy Institute (HEPI) – commissioned by the Department for Education (DfE) – finds that family background has an important impact on graduates’ future earnings, but not as much as subject and institution choice.

The report, “The relative labour market returns to different degrees” found that – when comparing similar graduates –those from the highest socio-economic background had graduate earnings around 8 per cent higher than those from the lowest. In terms of the affect certain subjects have on earnings studying medicine or economics adds 20 per cent to graduates’ earnings, while going to a Russell Group institution adds between 10-13 per cent.

The HEPI has also published its annual Student Academic Experience Survey report which shows a small rise in the number of students who believe they are getting better for value for money but 37 per cent believe they are not. The Teaching Excellence and Student Outcomes Framework will help applicants make better choices, and ensure that more students get the value for money they deserve from higher education. Students will have more information than ever before, allowing them to drill down and compare universities by subject and hold universities to account for the education they provide.

The survey also found that university undergraduates are more likely to have lower levels of wellbeing than all young people aged between 20 and 24. Only 17 per cent of students said they felt their life was highly worthwhile, compared to 22 per cent in 2016. It is essential that all students can access the support they need at university, especially with regards to mental health. We know that many institutions offer the right advice and counselling services to students that need them, but we want to see measures in place across the board. This includes prevention measures designed to support and encourage students in maintaining good mental health as well as supporting them when issues do arise.

It has been well documented that university graduates from certain subjects and from certain universities earn considerably more than others. For example, five years after graduation, men from the highest earning universities earn almost 50% more than graduates from other Russell Group universities (30% for women), while male Russell Group graduates earn over 40% more than those who attended the average post 1992 institution (35% for women). Meanwhile economics graduates earn over 40% more than history graduates who in turn earn 15% more than sociology students.

But to what extent are the earnings differences across university courses down to the course itself, and to what extent are they due to differences in students doing the courses?

In other words, do Russell Group and economics graduates earn more because they have better A levels and are from wealthier backgrounds, or does the subject you study and the university you go to have an effect over and above your background and prior attainment?

These are questions answered for the first time using large scale administrative data in new research by a team led by the IFS and produced with funding from the Department for Education.

Prior attainment and socio-economic background do matter. Comparing graduates who attended the same university, took the same degree subject and who have similar background characteristics, every extra A-level at grade A raises your earnings by around 3%, while coming from the highest socio-economic background adds around 8% compared to coming from the lowest.

But crucially, the subject you study at university and the higher education institution you attend also matter a lot. 

Earnings differences by degree subject:

• Economics and medicine students earn around 60% more than history and English students five years after graduation, around £40,000 per year compared to little over £25,000. Typically, graduates of STEM subjects like physics and maths have higher earnings than subjects like psychology and sociology. Those who studied creative arts, social care and media earn the least, around £20,000 five years after graduation.

• Some of this large gap in earnings is explained by differences in prior attainment and background characteristics of students, but even after these differences are accounted for, significant gaps in earnings remain. We estimate studying medicine or economics increases earnings five years after graduation by more than 25% (between £6,500 and £8,400 per year) compared to studying biological sciences, history or English.

• In addition, some subjects like computing and business, where average earnings don’t look especially high, actually seem to add a lot to earnings once you account for the background and A level grades of the students. So while computing graduates come 14^th out of 30 subjects in terms of male earnings (18^th for women) they leap up to 4^th when taking account of their prior attainment (7^th for women). To put it another way, for students with a weaker set of A level grades, studying computing increases the chances of earning a relatively high salary.

Earnings differences by institution five years after graduation:

• Graduates from the highest earning institutions have average earnings of around £40,000 per year for women and more than £50,000 per year for men five years after graduation. By contrast, graduates from the lowest earning institutions have average earnings below £20,000. Typically, Russell Group universities and pre-1992 institutions have higher earning graduates than newer institutions, with specialist arts, music and dance institutions having the lowest earning graduates.

• Even after accounting for differences in students’ background characteristics and prior attainment, graduates from Russell Group universities have the highest earnings. Overall, graduates of Russell Group universities have earnings 10-13% higher on average than graduates of other institutions with the same observable characteristics. Graduates of the top 10 universities have earnings at least 14% more than apparently similar graduates of the “average” university. The bottom 20 institutions have graduates who earn 10% less than those from an “average” institution.

The rich dataset allows us to investigate earnings at the course (subject-institution) level for the first time. This allows us to compare, for example, studying maths at Imperial College with studying history at Newcastle. We document earnings and returns for more than 1200 courses offered in the UK, separately for men and women.

• Once we allow for student characteristics, very large variation in earnings by course remains. The highest performing courses offer earning returns of around double the average degree, while the lowest performing courses offer returns around 50% below the average degree.

• For almost every course, there is a wide range of returns across universities. For example, women who studied one of the top 5 business courses earned 50% more five years after graduation than the average female graduate with similar prior qualifications. However, those women who studied one of the bottom 5 business courses earned 10% less than the average for graduates with similar backgrounds. For women, studying creative arts, there is also a wide range, but just 4 out of 105 courses offer positive returns compared to the average degree.

A number of factors that impact future earnings are determined before students start university:

• On average men earn more than women. In fact, the earnings of men and women are very similar just after graduation, but male wage progression is considerably more rapid for the following few years. Without for differences in attainment, subject and institution, the raw gender gap in earnings amongst graduates is around £4,000 (15%) five years after graduation. These figures include all employed individuals and so may be partially the result of women being more likely to work part-time. Part of this gap may in fact also be driven by differences in subject or university choices between men and women.

• Students from poorer backgrounds earn considerably less than their peers from richer backgrounds. Independent school students earn around 45% (£10,000) more on average five years after graduation than state-school students from poorer backgrounds. When comparing students with similar prior attainment who attended the same institution and studied the same subject independent school students still earn 8% more.

Jack Britton, Senior Research Economist at IFS and an author of the report, said:

“Family background has an important impact on graduates’ future earnings, but subject and institution choice can be even more important. Even when comparing similar graduates, being from the highest socio-economic background adds around 8% compared to being from the lowest. However compared to the average degree, studying medicine or economics add 20% to graduates’ earnings, while compared to the average university, going to a Russell Group institution adds around 10%.”

Chris Belfield, Research Economist at IFS and an author of the report, said:

“Even after students know which subject they want to study, the choice of institution represents an important decision that can have significant consequences for future earnings. For example, business degrees offer their graduates high returns on average, but there is wide variation across institutions. For women, the top business courses offer returns of around 50% above the average degree, while the business courses with the lowest returns have returns below the average degree.”

The findings were referred to in a speech today by the universities minister for England Sam Gyimah at the Higher Education Policy Institute (HEPI) conference, where he discussed new analysis commissioned by the department on graduate earnings.

Minister for Universities Sam Gyimah said:

“With four universities in the world’s top ten, the UK’s HE sector is flourishing and offers an almost unrivalled offer to students across the globe.

“But we want people to study subjects according to their strengths and passion, and to do so with the knowledge of what that degree actually offers.

“This new analysis by Institute of Fiscal Studies reveals the stark reality – that where and what you study does matter.

“That’s why I’m calling on universities to work with the government, to open up information about their courses and their outcomes – to help all applicants, regardless of their background, make more informed decisions and get better value for money.”

Responding to the IFS report and comments from the minister, Alistair Jarvis, Chief Executive of Universities UK, said:

 “It is right to expect that students receive a high quality education and that all universities offer a high value experience.

“A university degree remains an excellent investment. On average, graduates continue to earn £10,000 per year more than the average non-graduate and are more likely to be in employment. When looking at graduate salaries, it is important also to take into account the regional differences and socio-economic inequalities that exist in society, that a university degree cannot fully address.

“It is important that we do not use graduate salaries as the single measure of value. Many universities specialise in fields such as the arts, the creative industries, nursing and public sector professions that, despite making an essential contribution to society and the economy, pay less on average.

“A priority must be to make sure that all students receive timely and accurate information about different university courses, to ensure that their experience matches their expectations. Universities are keen to work with government to enhance information for students.”