Public sector work and the graduate premium

More fascinating and timely research from the team at HESA

David Kernohan is Deputy Editor of Wonkhe

The graduate premium is a deceptively complex political concept.

On the face of it, the common-sense position that a person’s choice to undertake university level study has a financial (salary) reward over a lifetime is the consensus position. The entire student finance system in England and Wales is predicated on this lifetime reward being larger (or, more cynically, at least equal to) the ever-growing proportion of a persons salary that is needed to cover (both fee and maintenance) loan repayments.

The criticism of this that you tend to hear is that people often study, and otherwise work, towards a career with a social rather than a personal financial benefit. Graduates, in other words, may be more concerned with doing good than earning – and graduates are disproportionately likely to work in the public sector (broadly defined).

This morning’s research from HESA ends up adding more weight to the critical position, and it does so via the medium of inflation indexing.

In short, indexing is the calculation used to take account of the changes of spending power caused by inflation (and deflation). You’ll be familiar with the idea that a pay-rise below inflation is a “real terms” pay cut – simply put, though the cash value of a salary may be rising the amount of stuff you can buy with this cash is falling at a greater rate.

During the recent inflationary peak, public sector and public sector adjacent workers – in health and education, for example – enjoyed below inflation payrises. The government, and thus their arms-length employers, could not afford substantial pay rises, or so they were told. Ministers even bragged about holding public sector pay down to combat inflation!

And it is this that explains the otherwise counter-intuitive real terms drop in the earning power of graduates in the professional categories generally used to denote “highly skilled” employment: professional and managerial roles. The majority of graduates in professional and managerial roles 15 months after graduation were in the education and health industries, and thus likely to be in the public sector.

In the sunlit uplands to come, it is possible that lower prevailing inflation and meaningful pay increases will bring the purchasing power of public sector wages back up. This will have the side effect of raising the “graduate premium” as an overall aggregate, and will also mean (under the current system) that graduates will pay off more of their outstanding fee and maintenance loan balance – it could even work out as a net benefit for government to pay public sector graduates more.

2 responses to “Public sector work and the graduate premium

  1. And? Where’s the data, and comparative data to support this? And the comparisons need to include University employee’s at ALL levels too.

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