Gap between graduate and school leaver wages will narrow, says IFS

As A-Level students across the country collect their results on Thursday and decide whether or not to attend university, the Institute for Fiscal Studies (IFS) said the wage gap between graduates and non-graduates will narrow in the future, due to an increasing number of people with higher degrees.

The IFS said in a report that the wage premium between graduates and GCSE school leavers has been maintained for about 20 years, but with increasing numbers of graduates that premium might be eroded and the wage gap narrowed.

It said: “This does not, however, imply that getting a degree will not be worth it any more. It’s just that the gain might be smaller in the future than it is now.”

The IFS said real wages had fallen significantly among all education groups since the Great Recession in the late 2000s and early 2010s. Relative to the Consumer Price Index, the median hourly wage of 25 to 29 year-old graduates fell by about 20% between 2008 and 2013.

The real median wage among 25 to 29 year-old school leavers also fell by a similar percentage, so wage differences between graduates and school-leavers had essentially stayed flat.

The amount of graduates had risen significantly in the past 20 years or so, as in 1993 13% of 25 to 29-year olds were graduates, by 2015 this had more than tripled to 41%.

The think-tank said the reason for the initial lack of decline in the wage premium was because firms used the increased supply of highly educated workers to their advantage and switched to a less hierarchical and more decentralised management structure which created more graduate jobs.

IFS PhD scholar and co-author of the report, Wenchao Jin, said: "The fact that the dramatic increase in the number of graduates in the early 90s did not have any discernible negative impact on graduates' wages relative to school-leavers is remarkable.

“Our research suggests the increasing supply of graduates induced firms to decentralise more decision-making and create more graduate jobs. As most firms have now made such a change, we believe future increases in graduate numbers could reduce the graduate wage premium in the future."