Graduate prospects

Graduate prospects

We start with three facts about UK higher education. UK graduates earn far more than non-graduates over their lifetime, are more likely to be in work and are far more likely to work later in life.

• How, then, can we explain newspaper stories about graduates earning less than they would have done had they not gone to university, being unable to find work and doing jobs that don’t require a degree?

• Here’s our view on what’s happening.

• Graduates do, indeed, earn more than non-graduates on average. A 2020 study by the Institute for Fiscal Studies (IFS) found that after allowing for previous educational attainment and the cost of a degree, the average male or female earns about 20% more over their lifetime as a result of having a degree.

• That generalisation hides some important caveats. Earnings vary, especially by degree subject. The IFS estimates that over their lifetime, male graduates in creative arts will be £169,000 worse off than had they not gone to university. At the other end of the spectrum male medical students achieve a return of over £1 million.

• Where you go to university matters. The last 50 years has seen a tripling, to 147 institutions, in the number of accredited UK universities. Male graduates of the 34 Russell group universities earn, over their lifetime, more than seven times as much as the least selective universities.

• The class of degree plays a role, too. The IFS, for instance, estimates that in law and in economics, a graduate with a 2:1 degree earns 15% more than someone graduating with a 2:2.

• On average, graduates earn more than those who don’t go to university, but the IFS also found that roughly one in five graduates will see a negative return from going to university.

• Whatever the uplift to earnings from having a degree, it seems to have narrowed. A number of studies suggest that the graduate premium – or the excess income earned by a graduate over their lifetime – is shrinking. Data from the Department for Education (DfE) shows that for graduates aged 21–30 the premium over non-graduate pay fell by one-third between 2007 and 2024. (Even more alarmingly, the data shows that real median graduate pay for the 21–30 age group dropped by 9% over this period.)

• One obvious explanation for the waning of the graduate premium is an increase in the number of people with degrees. In 1950, just 3.4% of 17–30-year-olds went to university in the UK. By the year 2000, the proportion had risen to 33%. Today about half attend university.

• Competition for graduate jobs has sharpened, with data showing consistently weaker growth in graduate job vacancies than for the overall job market since 2021. The Institute of Student Employers reported that last year businesses received an average of 140 applications per graduate position, the highest since records began in 1991.

• A sharply increased supply of graduates has coincided with a squeeze on graduate pay in the public sector and with sharp, real terms increases in the minimum wage. The inevitable result has been a narrowing of the graduate premium.

• If this weren’t complex enough, we need to acknowledge a risk of relying on averages when looking at the graduate premium. If, as seems to be the case, more recent graduates earn less than their predecessors, averages, based on earlier cohorts of graduates, provide a flawed picture of what a degree is worth today.

• So what conclusions can we draw? The uplift to having a degree is significant, subject- and institution-dependent, and appears to have narrowed. Graduates are more likely to be in work than those who didn’t go to university, but competition for jobs has intensified and more graduates are doing jobs that do not require a degree. Whether these trends are temporary is hotly debated.

• It would help to have better information. We don’t have high quality, timely data on the uplift to earnings and job prospects conferred by a degree (as distinct from pre-18 educational attainment and potential) by subject and by institution. Given that half of young people go to university, this seems like a gap.

• We end with a perhaps obvious caveat. This briefing has been about income and jobs. Important though they are, they provide a very incomplete measure of the value of a university education to the individual or to society.

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week down 0.9% at 8,775. Crude oil peaked above $78 per barrel last week over continued hostilities between Israel and Iran.

Economics

• The US Federal Reserve maintained interest rates at 4.25%-4.5% for the fourth consecutive time, saying they are “well positioned to wait for more clarity on the outlook for inflation and economic activity”. The Fed cut its forecast for US economic growth this year to 1.4%, from 1.7% in March
• Following the Fed’s interest rate decision, Federal Reserve governor Christopher Waller said US interest rates could be lowered “as early as July”
• US retail sales fell by a greater-than-expected 0.9% in May, the largest monthly fall since March 2023, as sales continued to decline following the frontloading of purchases prior to the imposition of US import tariffs
• Central banks are expected to increase their holding of gold over the coming year, according to a survey of monetary authorities by the World Gold Council, while holdings of US dollars are expected to fall over the next five years amid recent geopolitical uncertainty
• The global supply of oil is expected to outstrip demand in 2025, despite conflict in the Middle East, due to rising OPEC+ production and weak oil consumption in China and the US, according to the International Energy Agency
• US president Donald Trump signed an executive order to implement the previously agreed trading arrangement with the UK, which includes a reduction of US import tariffs on the majority of the UK’s car exports
• UK inflation eased slightly to 3.4% in the year to May, from 3.5% in April
• The Bank of England maintained interest rates at 4.25%, saying it will remain “sensitive to heightened unpredictability in the economic and geopolitical environment”
• The UK government released its ten-year infrastructure strategy that details plans for £725bn of economic and social infrastructure. A National Infrastructure Pipeline detailing the projects to be undertaken will be published in July
• UK consumer confidence improved for the second consecutive month in June due to an improvement in consumers’ views on the economic outlook
• Economic sentiment in the German finance sector improved in June at its fastest pace since April 2023, according to the ZEW survey
• The price of insuring ships sailing through the Strait of Hormuz has risen by more than 60% since the conflict between Israel and Iran began, the FT reports
• The Central Bank of Japan maintained interest rates at 0.5% and agreed to slow down the rate at which it reduces its bond purchase programme over fears of economic stability

Business

• The chief executive of Gen AI company OpenAI, Sam Altman, accused Facebook-owner Meta of luring its developers with significant sign-on bonuses and salaries as industry competition intensifies
• Two major US companies in the clean-energy industry filed for bankruptcy this month, highlighting concerns for the sector amid Mr Trump’s proposals to cut clean energy tax credits
• UK steel manufacturer British Steel secured a £500m contract to supply train tracks for Network Rail over the next five years, following the government’s recent intervention at its Scunthorpe steel production plant
• Spanish lender Sabadell is considering selling British bank TSB amid a potential takeover by Spanish rival BBVA, the FT reports
• The owner of the UK’s largest bioethanol plant, ABF Sugar, said the government has two weeks to provide a rescue package for the industry, following the recent US-UK trade agreement that includes a 1.4bn litre tariff-free import quota to the UK
• The UK’s House of Commons Environment, Food and Rural Affairs Committee called for a “root and branch” reform of the water industry and said the government should consider various other models of water company ownership, amid ongoing financial issues of utilities company Thames Water
• The UK government said that the High Speed 2 rail line will face higher costs and further delays, following the publication of an assessment into the current progress of the project
• The global ranking of 60% of UK universities fell this year, according to the QS World University Rankings, amid rising competition from institutions in China and India

Global and political developments

• The US military carried out strikes on three Iranian nuclear sites, saying they had caused “extremely severe damage and destruction”
• Iranian president Masoud Pezeshkian said the US “must receive a response for their aggression” following the strikes. UK prime minister Keir Starmer, French president Emmanuel Macron and German chancellor Friedrich Merz jointly called for Iran to negotiate an agreement
• Spanish prime minister Pedro Sánchez reportedly opposed a NATO proposal to increase defence spending targets to 5% of GDP, according to Spanish newspaper El País, calling the measure “unreasonable” and “counterproductive”
• The EU refused to hold an annual high-level economic dialogue with China due to ongoing trade disagreements between the two sides
• North Korea will send 5,000 military construction workers to the Kursk Oblast region to support Russia in repair work caused by Russia’s conflict with Ukraine
• Mr Starmer said the small boat crisis in the English Channel is “deteriorating”, as he agreed with Mr Macron to boost UK-French cooperation
• The world’s ‘carbon budget’, the amount of greenhouse gases that can be emitted while still having a 50% chance of keeping global warming to less than 1.5 degrees above pre-industrial levels, is set to expire within the next three years, according to a group of international scientists

And finally… a New York restaurant released a lobster weighing 21 pounds and estimated to be 110 years old, back into the sea. The restaurant’s owner said the lobster had unexpectedly lived in the tank for years and releasing ‘Lorenzo’ the crustacean was a fitting way to celebrate National Lobster Day – surf and turfed-out