University graduates continue to enjoy higher earnings than their non-graduate peers, but there are signs the gap may soon shrink, according to the Institute for Fiscal Studies (IFS).



The IFS publishes its results as hundreds of thousands of teenagers receive their A-level results on Thursday. Record numbers will make the decision to go to university, which in England means accruing significant debt as a result of the annual £9,000 tuition fees.

Despite concern that a dramatic increase in the number of young people going to university has led to a decline in graduate wages relative to those of school-leavers, the IFS says the graduate premium has remained the same for two decades. It says, however, that further increases in graduate numbers could start to erode the premium. “It’s just that the gain might be smaller in the future than it is now,” the report notes, adding that going to university will probably remain worthwhile.

The increasing cost of going to university was flagged up again on Wednesday when it emerged that Exeter University plans to raise tuition fees to £9,250 for existing students, rather than just new students. Some universities have chosen to apply the fee increase only to new students beginning their studies in 2017.

The shadow higher education spokesman, Gorden Marsden, accused Exeter of moving the goal posts. “Students have signed up, largely for three-year courses, on the assumption that changes in that time will not affect them.”

The government has long argued that the cost of going to university is more than justified by higher graduate earnings, but recent studies have suggested the value of a degree has declined because the supply of graduates has outstripped demand.



In 1993, only 13% of 25 to 29-year-olds had a first or higher degree. By 2015 the figure had tripled to 41%, and following the removal of the student numbers cap in 2015, graduate numbers are expected to increase further.

According to the IFS, median wages for both graduates and non-graduates fell by 15% between 2008 and 2015, but the wage difference between graduates and school-leavers has stayed at about 35% for the past two decades.

The main reason for the continuing graduate wage premium, the IFS said, was that firms had created more graduate jobs by hiring more managers and switching to less hierarchical structures. “This process cannot go on forever,” it said. “There are now signs that it might be reaching a natural end, with some small falls in the wages of graduates in the private sector relative to school leavers in the most recent years. Further increases in the number of graduates could start to erode the graduate wage premium in the future.”

The IFS researchers said they were puzzled that the rapid expansion in higher education numbers in recent years had not caused the 20% drop in the graduate wage premium their models predicted. Instead, they found that the labour market had changed to increase the proportion of staff working in management, as well as allowing workers more autonomy overall.

“While we do not claim that our empirical results for the organisational change explanation are definitive, we believe that they do provide a coherent explanation for the remarkable stability of the education wage differential from the early 1990s until the mid-2000s in the UK that occurred despite unprecedented increases in the share of entry workers with degree level education over the same period.

“This points to the UK responding to the substantial increase in university education through an adjustment in the organisational structure of work,” the IFS concluded.

It said increasing numbers of future graduates “would result in declines in the education wage differential” once the trend of hiring extra graduates into management had run its course. “There is already some sign of this decline in the private sector. The wage differential, though, remains substantial,” it said.



The numbers of school leavers is likely to remain flat for a further four years, but university remains an increasingly popular option, with universities making strenuous efforts to recruit among the static pool of potential students.

As a result, the next few years are likely to be a “buyer’s market” for those going to university, with universities making more generous offers in terms of grades required.

A new report by the Social Market Foundation (SMF) found that the number of students from disadvantaged backgrounds going to university was increasing fast, especially those entering with vocational qualifications such as BTecs rather than A-levels.



Between 2008 and 2015, students entering higher education from the most disadvantaged backgrounds just with A-levels increased by 19%, while the research shows that those with BTecs increased by 116%.

“Large differences in entry rates exist between areas for young people with A-levels, but entry rates for those with BTecs or a combination of BTecs and A-levels are much more equal across areas [of the UK],” the report said.

The rise in the number of university students from disadvantaged areas has continued despite the increase in tuition fees. A student on a three-year undergraduate course who takes out a full maintenance loan will graduate with more than £50,000 of debt.

Students with vocational qualifications still struggle to get into the leading universities, though the SMF found some notable exceptions. King’s College London nearly quadrupled the number of young people with BTecs it took in between 2008 and 2015, so that students with BTecs now make up more than 7% of its intake.

The SMF also found that graduates with a BTec and a degree have an hourly earnings premium of 20% compared with those with only a BTec as their highest qualification.