Evidence from NST on how degree class raises graduate earnings

Naylor, Smith and Telhaj (2016) examine whether graduate earnings are systematically related to class of degree awarded at university. They exploit all datasets which provide information on individuals’ degree class and subsequent earnings as graduates. They estimate there to be an hourly wage premium for a ‘good’ (relative to a ‘lower’) class of degree of 7% to 9%, implying a wide spread around the average graduate premium.

Methods and findings of the paper

It seems likely that, amongst other considerations, employers will base their choice across candidates on the grade score achieved at the given qualification level: in the case of graduates, this means on the class of degree awarded. Indeed, the Association of Graduate Recruiters reported in 2010 that 78% of employers filtered out applicants who had not achieved at least an upper second class degree.

This paper by Robin Naylor, Jeremy Smith and Shqiponja Telhaj analyses data from all the individual level data available with information on both class of degree awarded and subsequent earnings of graduates from UK universities. These datasets include the Birth Cohort Study, the Labour Force Survey, Graduate Cohort Surveys and Higher Education Statistics Agency administrative data. A remarkably robust picture emerges from all these data sets, indicating that lifetime earnings of graduates are something like 7% to 9% higher for graduates who had achieved a First or 2.1 at university relative to someone with a 2.2 or lower. The analysis controls for many possible confounding factors, including: gender, university attended, subject studied, prior schooling, previous qualifications and family background.

The paper also finds that the premium for high grades at university has been growing over time as the proportion of young people in a cohort has been increasing. The authors argue that this suggests that as more people obtain degrees, it is becoming increasingly important to ‘stand out from the crowd’ by achieving a high class of degree.

Naylor, R.A., Smith, J.P. and Telhaj, S., ““Graduate returns, degree class premia and higher education expansion in the UK,” Oxford Economic Papers, vol. 68 (2), pp. 525-545, 2016.