Is Mass Higher Education Working? Evidence from the Labour Market Experiences of Recent Graduates

Beginning of article

This paper uses a variety of recent sources of information to explore the labour market experiences of chose who gained a degree in the 1980s and 1990s. Specifically, we address the issue of 'overeducation'--the view that the expansion of higher education in the 1990s created a situation in which increasing numbers of graduates were unable to access employment that required and valued graduate skills and knowledge. Two complementary approaches to this issue are adopted. We review available evidence on the graduate earnings premium and change in the UK occupational structure, and we conduct a detailed examination of the earnings and characteristics of jobs clone by a large sample of 1995 graduates seven years after graduation.

We conclude that, while there may have been a decline from the high premium enjoyed by older graduates, for those who graduated in 1995 the average premium was holding up well, despite the expansion. Although we found differences between established graduate occupations and the newer areas of graduate employment, our evidence suggests that the development of new technical and managerial specialisms and occupational restructuring within organisations has been commensurate with the availability of an increased supply of highly qualified people.

I. Introduction

The UK higher education system has undergone a major transformation over the past twenty years, from a system that catered for an elite group of entrants as recently as the early 1980s to one that now aims to provide tertiary education to half the population of 18-30 year olds. The number of participants in higher education in Great Britain almost doubled in a decade, from 1.2 million students in 1990/91 to 2.1 million in 2000/01. These changes have been facilitated by a number of institutional and economic factors, including reform of the school qualifications obtainable at age 16, expansion of capacity (particularly of degree-level courses within former polytechnics and many colleges of higher education, incorporated within the university sector in 1992), the decline in employment opportunities for minimum-age school leavers and the associated fall in relative earnings for young people (Bynner et al., 2002).

Given the scale of this expansion, concerns have been expressed that the increased output of highly qualified people may not have been matched by an increase in demand for their skills and qualifications (Brown and Hesketh, 2004; Brynin, 2002; Keep and Mayhew, 1996, 1999). As more young people stay in the higher education sector and gain degrees, it is argued that this leads to a lowering of the graduate earnings premium, increasing diversity in the rate of returns to higher education within the graduate population (Walker and Zhu, 2003) and an increasing number of graduates relegated to non-graduate jobs. The argument is basically one of excess supply leading to skills mismatch and declining returns to education. With a wider spectrum of the ability range drawn into higher education and as employers substitute graduates into jobs which were previously the domain of non-graduates, the value of higher education in terms of the pecuniary benefits it has traditionally afforded graduates is, it is argued, increasingly eroded.

A variety of measures of mismatch have been developed and applied to a range of sources of information about graduate labour supply. Battu et al. (2000) suggest that graduate 'mismatching' could be as high as 40 per cent, Sloane et al. (1999) estimate 31 per cent, Dolton and Vignoles 12000) estimate 30-38 per cent, Green et al. (2002) produce a figure of 46 per cent and Alpin et al. (1998) report 20-30 per cent. The general scale and uniformity of these findings raises important questions about the continuing expansion of higher education.

Other critics of educational expansion at the tertiary level have suggested that the major increase in the supply of graduates could be indicative of a growth in credentialism rather than the development and enhancement of human capital (Brown, 2003; Wolf, 2003; Ainley, 1997; Keep and Mayhew, 1999). However, employers in areas requiring certain graduate skills (particularly with reference to numeracy-based subjects), have continued to report skill shortages (AGR 2002; Mason, 1999, 2002). Advocates of educational expansion argue that widening access to previously under-represented groups and providing 'second chance' opportunities for undergraduate study is enabling more people to realise their potential and make a more substantial contribution to the economy.

This article presents information from a range of sources, some of which have only recently become available, which challenge the view that there is a growing mismatch between the demand for and supply of skills associated with higher education. We employ both quantitative and qualitative methods, examining a variety of sources of information to gain a better understanding of the changing nature of the match between education and employment. These range from analysis of trends in the occupational structure of the UK labour market; cross-cohort comparisons of the occupational mobility of graduates in their early careers; estimates of the changing nature of the graduate earnings premium; information on use of degree skills and knowledge provided by a national sample of 1995 graduates seven years after they had completed their first degree courses and detailed descriptions of work activities and responsibilities from a subsample of such graduates.

2. Occupational structure and graduate jobs

Apart from the wider benefits associated with higher education, possession of a university degree is widely regarded as a 'stepping stone' onto a career ladder--a degree is assumed to provide access to a graduate job. From an historical perspective, the notion of a professional career linked to a university education was clear. Traditional graduate jobs were those for which a degree was essentially a prerequisite. Examples include medicine, law, the clergy and the scientific professions. But 'graduate jobs', defined as those for which a degree is now regarded as an appropriate entry qualification and in which the jobholder applies skills and knowledge acquired via a higher education, are now prevalent in a much wider range of occupations. To measure the changing demand for graduate level skills and knowledge we investigate changes in occupational structure over the past twenty years.

For this purpose we have two requirements: a continuous and detailed source of information on occupational structure and a classification of detailed occupational categories within this source which can be classified into 'graduate' and 'non-graduate' jobs. For the former we use the New Earnings Survey, a 1 per cent random sample of employees within the PAYE tax system, which has been conducted annually on a reasonably consistent basis since 1975. We have reclassified each of the detailed occupation unit groups within this data source to either 'graduate' or 'non-graduate' categories. (1) Here we outline briefly the five-fold classification of occupations [SOC(HE)] we employ for this purpose.

By assigning jobs to SOC(HE) categories on the basis of their detailed 3/4 digit occupational codes, we have constructed a classification that enables us to investigate long-run structural trends in the labour market. It also enables us to examine comparative skills levels, job content, career trajectories and rewards gained in traditional or newer graduate and non-graduate occupations, and to make comparisons between graduates and non-graduates working in these occupations. Table 1 describes four distinct categories of occupations in which most graduates work, ranging from the more established Traditional and Modern categories which are comprised of occupations that have been largely accessed via undergraduate education by preceding generations of graduates, to the more recently-evolving areas of graduate employment that New and Niche graduate occupations provide.

Applying this new classification to the New Earnings Survey data, chart 1 reveals how the UK occupational structure has changed over the period from 1980 to 2000. This shows that traditional graduate occupations account for less than 5 per cent of total employment and that there has been little change in this proportion over these two decades. For both men and women, the proportion of employment located within Modern and New graduate occupations expanded considerably between 1980 and 2000. Given the general expansion of employment which took place over this same period, we estimate that the growth in potential graduate employment is in the order of 3 million jobs. However, this is simply indicative of the scope within the occupational structure to accommodate an increase in the supply of graduates. To gain some indication of the extent to which graduates find employment in such occupations, we turn to sources of information that describe their movement into, and out of, these occupational groups.

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One of the best-known sources of information about graduate destinations is the First Destinations Survey, which, from 1994 to 2003, collected information on a consistent basis on the employment and occupational status of all UK graduates some six months after graduation. Chart 2 shows trends in the occupational distribution (by SOC [HE]) of UK graduates at this early point after completion of their first degrees. While a significant proportion were not in employment at this time, mainly because they were engaged in postgraduate study, we note that as many as 20 per cent of first degree graduates were found in non-graduate jobs six …