What Is A Graduate Earnings Premium?
May 11, 2016
The graduate earnings premium describes how much more a graduate can expect to earn in a career than someone without a degree. There has always been a big difference between the earnings of university graduates and their nongraduate counterparts. The exact figures change each year, and the earnings premium can even decrease occasionally. However, the overwhelming trend is that students can expect to earn more over their careers with a degree. The premium isn’t limited to earnings, but earnings are critical considerations when many students consider the higher costs of financing their educations. These benefits also include better choices of employers, shortened times for seeking new jobs and greater career mobility. Students who worry about incurring large amounts of college-associated debt can rest easier knowing that their earnings premium will usually cover the debt payments with more left over to fund a better, more fulfilling lifestyle.
Statistics that support university educations
A wealth of statistics and anecdotal evidence shows that, despite occasional upswings and retrenchments, the graduate earnings premium is real, substantial and applicable throughout many countries in Europe, Asia, North America and the West. A University of Cambridge study found that big data shows that this educational premium is even higher for women. The study found the following trends among England’s graduates:
- Previous surveys underestimated the earnings premiums of all graduates.
- After 10 years, 10 percent of male graduates earned more than £55,000, 5 percent earned more than £73,000 and 1 percent earned upwards of more than £148,000.
- 10 percent of women graduates earned more than £43,000, and 1 percent earned annual salaries higher than £89,000.
- Recessions and economic downturns are more likely to affect nongraduates than graduates.
A BIS report also suggests that the earnings premium, which can vary year-to-year due to market fluctuations, isn’t the only benefit of a degree. The report found that graduates and postgraduates enjoyed better employment prospects among working-age adults because 87 percent of graduates find entry-level jobs immediately while only 70 percent of their nongraduate counterparts do. Graduates can expect to earn £9,000 more per year, which is easily enough to pay back most student loans with a tidy net profit premium. Of course, once the educational expenses are paid, students can enjoy the full benefit of their higher earnings. The report further confirms that graduates maintain a 1.7 percent higher employment rate over the course of their working careers. There are simply some other benefits of getting a degree that could be more important than earnings power alone. These benefits include:
- Greater prospects for career advancement
- Flexibility for lateral and vertical career movement
- Less time spent looking for new employment
- Unemployment rates that stand at 2.4 percent for postgraduates, 3.5 percent for graduates and 7.4 percent for nongraduates
Committing to better educational performance
New studies also indicate that just getting a degree isn’t the only path to increased graduate earnings premiums. Employers are exercising greater discrimination in how they choose and pay graduates based on their academic performances. A respected study examined the relationship in earning a salary premium and achieving high marks at university. The study, ‘Graduate Returns, Degree Class Premia and Higher Education Expansion in the UK,’ found that graduates who earned 2:1 or higher earned 7 percent to 9 percent more than students with inferior degrees five years after graduating. The study found that this gap is increasing but that few reputable studies have been made to assess this important employment and earnings trend. Further findings include:
- More students are pursuing degrees, which makes earning the highest premium increasingly competitive.
- The earnings gap remains relatively constant throughout careers.
- The premium averages 11 percent higher at age 30 for graduates earning an A-level degree than for students who earn lower degrees.
- A 2010 report by the Association of Graduate Recruiters found that 75 percent of employers filtered job applicants who hadn’t received at least an upper second degree.
Today’s graduates, who face increased demands of working with new technologies, understanding and integrating social media and marketing’s role in business processes and needing to develop networks of digital associates for achieving employment success and earning higher incomes, have an extraordinary opportunity to maximize their graduate earnings premiums by using their time at university to build key networks of friends, professors and business associates. Although the value of graduate earnings premiums vary by industry and year-to-year, the long-term benefit in earning power remains extraordinary.