It has been well documented that university graduates from certain subjects and from certain universities earn considerably more than others. But to what extent are the earnings differences across university courses down to the course itself, and to what extent are they due to differences in students doing the courses? Do certain graduates earn more because they have better A-levels and are from wealthier backgrounds, or does the subject you study and the university you go to have an effect over and above your background and prior attainment?
These are questions answered for the first time using large-scale administrative data in new research funded by the Department for Education and carried out by a team led from the Institute for Fiscal Studies (IFS) along with Dr Matt Dickson from our Institute for Policy Research (IPR).
Their research finds that prior attainment and socio-economic background do matter. Comparing graduates who attended the same university, took the same degree subject and who have similar background characteristics, every extra A-level at grade A raises your earnings by around 3%, while coming from the highest socio-economic background adds around 8%, compared to coming from the lowest. But crucially, the subject you study at university and the higher education institution you attend also matter a lot.
Earnings by degree subject
Economics and medicine students earn around 60% more than history and English students five years after graduation, around £40,000 per year compared to just over £25,000. Typically, graduates in STEM subjects, including Physics and Maths, have higher earnings than those in subjects like psychology and sociology. Those who studied Creative Arts, Social Care and Media earn the least, around £20,000 five years after graduation.
Some of this large gap in earnings is explained by differences in prior attainment and background characteristics of students, but even after these differences are accounted for, significant gaps in earnings remain. We estimate studying Medicine or Economics increases earnings five years after graduation by more than 25% (between £6,500 and £8,400 per year) compared to studying Biological Sciences, History or English.
Some subjects, like Computing and Business, where average earnings appear not to be especially high, actually seem to add a lot to earnings once background and A level grades of the students are accounted for. So, while Computing graduates come 14th out of 30 subjects in terms of male earnings (18th for women), they leap up to 4th when taking account of their prior attainment (7th for women).
Earnings by institution five years after graduation
Graduates from the highest earning institutions have average earnings around £40,000 per year for women and more than £50,000 per year for men five years after graduation. By contrast, graduates from the lowest earning institutions have average earnings below £20,000. Typically, Russell Group universities and pre-1992 institutions have higher earning graduates than newer institutions, with specialist arts, music and dance institutions having the lowest earning graduates.
Even after accounting for differences in students’ background characteristics and prior attainment, graduates from Russell Group universities have the highest earnings. Overall, graduates of Russell Group universities have earnings 10-13% higher on average than graduates of other institutions with the same observable characteristics. Graduates of the top 10 universities have earnings at least 14% more than apparently similar graduates of the ‘average’ university. The bottom 20 institutions have graduates who earn 10% less than those from an ‘average’ institution.
Factors impacting earnings before university
On average men earn more than women. In fact, the earnings of men and women are very similar just after graduation, but male wage progression is considerably more rapid for the following few years. Without for differences in attainment, subject and institution, the raw gender gap in earnings among graduates is around £4,000 (15%) five years after graduation. These figures include all employed individuals and so may be partially the result of women being more likely to work part-time. Part of this gap may also be driven by differences in subject or university choices between men and women.
Students from poorer backgrounds earn considerably less than their peers from richer backgrounds. Independent school students earn around 45% (£10,000) more on average five years after graduation than state-school students from poorer backgrounds. When comparing students with similar prior attainment who attended the same institution and studied the same subject independent school students still earn 8% more.
Dr Dickson from the IPR explains: "Previous research has shown that graduate earnings vary a lot by university and subject. But this work shows that important differences in earnings still exist even when we compare individuals with similar backgrounds and prior attainment. This research is a significant improvement in the information available to students making decisions over where and what to study at university, and for policy-makers trying to better understand the courses that are associated with the greatest success in terms of employment and earnings."