Yes, there is a graduate earnings premium (even if you account for prior qualifications)

It’s official. From about 3-4 years after graduation, graduates (as a single group) earn substantially more than non-graduates.

They are more likely to be in employment at this point, and if employment is not their primary activity they are more likely to be in HE than anywhere else.

From about 3-4 years after graduation, graduates who got the equivalent of five GCSEs at grades A* to C are more likely to be in employment, and likely to earn more when they are, than their non graduate peers with similar results.

Graduates who did not get the equivalent of five GCSEs at grades A* to C (that’s around 8 per cent of graduates) earn more than their peers from about 5 years after graduation.

And in both these cases graduates are more likely to be in employment (and less likely to have DWP benefits as a primary source of income) than their non-graduate peers.

How do I know this? Way back in 2021 the Department for Education launched an experimental dataset and report on post-16 education and labour market activities, pathways, and outcomes.

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Using the longitudinal education outcomes (LEO) methodology – matching data across education records, tax records, and the Department of Work and Pensions database – it sets out combined numerical activity and salary information for young people who took GCSE exams between 2002 and 2007 for between ten and fifteen tax years after the year they took GCSEs (generally at age 16).

In essence, this is LEO, but for all young people rather than just graduates. So the same familiar issues apply, we are dealing with median salaries (on an annual, rather than per-hour basis) and primary activities only.

The larger numbers involved in a multi-cohort study allow us access to a range of subgroups: We can look at salaries and activities by gender, free school meal marker, SEN marker, ethnicity, first language, type of school, Key Stage 4 (GCSE level) attainment, region, deprivation (IDACI), and graduate (holds a level 6 qualification) status. There’s also a single intersection measure – non-graduates holding level 3 (A level type) qualifications or level 4 and 5 (sub-degree) qualifications, each showing key stage 4 performance.

As far as I am aware this is the only public dataset that allows us to compare the outcomes of graduates with equivalently qualified at level 3 non-graduates. I’d love to see Skills England take another run at this one with some new data.

So what is it that non-graduates do instead of attending higher education? By three years after GCSEs (when graduates are generally studying HE) around a fifth are in adult FE, just over a quarter are in employment and around a third either have no sustained destination, or are claiming DWP benefits as a primary source of income.

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At the same point in their careers, the subset of non-graduates who would be most likely to have become graduates (those with good GCSEs and at least one L3 qualification) are primarily in adult FE or in (presumably sub-degree) HE – about a fifth in each case. Another fifth either have no sustained destination or are claiming benefits as a primary source of income, and a third are in employment.

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Fast forward to ten tax years after GCSEs: roughly age 26. Some fifty-two per cent of non-graduates are in employment, compared to 65 per cent of graduates. The employment status of our group of non-graduates with similar pre-entry (5 good GCSEs plus anything at L3 or above) qualifications to graduates are very slightly less likely (just under 64 per cent) to be in employment at that point – though, as we have seen, earning around £4,000 less with the likelihood of seeing this gap growing as they progress through their careers.

This data release got less attention than the 2020 IFS work on lifetime earnings even though it is arguably more valuable to the debate certain parts of the political right are having about how many graduates we should have. From my perspective the argument about our need for graduate skills (both specifically vocational and more generally) is fairly settled among those who know the data: but the individual benefits, given the stagnation more generally in entry salaries for young people and the rise of what we used to call the minimum wage, feel less secure.

An update to this research would go some way towards answering those questions.