Regional differences in the Graduate Earnings Premium (PPT file)

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Regional Differences in the Graduate Earnings Premium
James Carey, Swansea University
Introduction
Despite large rises in student numbers, the graduate earnings premium has
persisted. This has been due to the increase in the supply of graduates being
matched by an equal increase in the demand for graduates. This study uses
econometric techniques to examine the premium paid for possessing a
degree, paying particular attention to how this varies across the UK.
Data & Methodology
We use the Annual Population Survey (APS) between the years 2004 and
2007. Premiums are calculated separately for males and females, relative to
a baseline of persons whose highest qualifications are A-levels. We estimate
an earnings equation, using hourly earnings, which includes controls for
personal characteristics such as age, ethnicity, health and marital status;
alongside employment details including job tenure, employer size and
sector, with dummies to control for industry and occupation.
Results
We find a graduate earnings premium of 25.7% for men and 27.1% for
women, relative to persons whose highest qualifications are A-levels. All
results presented here are significant at the 1% level.
Table 1: Regional Graduate Earnings Premiums: Compared to
National Baseline
Male
Female
Premium
t-stat
Premium
t-stat
East
25.0%
22.78
24.0%
23.1
East Midlands
18.5%
16.36
20.1%
18.83
London
54.8%
68.17
56.2%
67.73
North East
17.3%
15.74
20.4%
20.58
North West
19.7%
24.76
23.0%
29.98
Scotland
22.6%
32.08
25.5%
38.37
South East
31.8%
42.44
28.5%
39.15
South West
18.8%
21.06
19.9%
22.93
Wales
14.8%
17.42
20.0%
24.85
West Midlands
20.1%
20.83
22.1%
23.19
When comparing regional graduate premiums to a UK level baseline, we
Yorkshire
18.05
20.9%
find the
greatest premiums17.2%
in London,
the South
East and23.1
the East of
England. In fact, relative to the national baseline of possessing A-levels,
working in London and possessing a degree results in a premium of 54.8%
for men and 56.2% for women. Much of this is being driven by the generally
high level of earnings in the South East regions.
Table 2: Regional Graduate Earnings Premiums: Compared to
Regional Baseline
Male
Female
Premium
t-stat
Premium
t-stat
East
22.3%
12.48
20.1%
10.92
East Midlands
26.1%
13.76
24.7%
12.32
London
19.8%
15.21
23.0%
15.49
North East
26.5%
16.52
26.4%
16.92
North West
25.4%
21.5
27.3%
21.62
Scotland
26.2%
26.26
27.6%
28.03
South East
25.5%
21.43
22.0%
18.31
South West
22.6%
15.59
23.6%
15.26
Wales
20.3%
15.06
22.0%
16.69
West Midlands
24.6%
16.63
26.7%
16.93
Yorkshire
21.0%
15.13
26.9%
17.39
By just focusing on the reward for possessing a degree relative to A-level
holders within the same region, we see that the large graduate premium of
the South Eastern regions has been reduced dramatically. London now
offers the smallest graduate premium, due to its high levels of earnings for Alevel holders (the premium has fallen to 19.8% for men). Graduate returns
within regions are now greatest for men in the North East (26.5%) and for
women in Scotland (27.6%).
Table 3: Graduate Earnings Premium by Subject
Male
Premium
Female
t-stat Premium
t-stat
Medicine & Dentistry
89.6%
32.13
92.7%
33.08
Medicine Related
40.9%
22.48
39.7%
38.83
Biological Sciences
22.5%
17.73
28.3%
24.98
Veterinary & Agricultural
16.4%
6.83
22.3%
9.27
Physical Sciences
25.7%
25.15
34.6%
22.68
Maths & Computing Sciences
26.1%
24.97
37.4%
22.63
Engineering
31.1%
35.66
33.1%
12.67
Technologies
17.9%
7.17
19.2%
5.25
Architecture
25.5%
17.91
29.3%
12.39
Social Studies
24.8%
18.46
27.8%
28.35
Economics
34.6%
21.74
34.2%
15.52
Politics
20.7%
9.22
27.3%
10.33
Law
41.2%
22.83
44.1%
25.98
Business Administration
32.4%
36.91
32.6%
35.92
Mass Communications
9.6%
4.36
19.0%
10.48
Linguistics & Classics
22.0%
10.99
30.9%
21.82
European Language & Literature
20.9%
6.81
29.0%
14.98
Other Language & Literature
29.8%
4.37
35.1%
6.24
History & Philosophy
13.1%
9.6
26.6%
19.26
Arts
8.8%
6.58
17.2%
14.25
Education
27.1%
18.69
30.6%
26.4
Note: Due to a change in the coding of degree subjects between 2004 and 2005 in the APS,
Table 3 excludes observations from 2004.
Disaggregating by subject reveals the greatest graduate premiums to exist for
medicine and dentistry, and medicine related subjects, followed by law,
economics and business administration. It should be recognized that some of
the large premium enjoyed by medicine and dentistry may represent the
additional years of study required by the degrees under this classification.
The lowest returns to obtaining a degree exist in arts and mass
communications.
Conclusion
Regional results suggest that whilst degrees are most highly rewarded in
London and the South East (compared to national earnings of A-level
holders), after controlling for the already high rates of pay to A-levels in these
regions the greatest graduate premiums, relative to A-levels ,are found in
Scotland and the North East. Results also confirm that females have more to
gain by obtaining a degree than males and that medicine and dentistry offers
the largest mark up.

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