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This paper uses tax and student loan administrative data to measure how the earnings of English graduates around 10 years into the labour market vary with the socioeconomic background of the graduate. Whilst much attention has been paid to the socio-economic gap in higher education participation, far less research has investigated the extent to which the earnings of graduates vary by their socio-economic background. Based on a simple measure of parental income, we see that graduates from higher income families (from the top fifth of the income distribution of those enrolled in university) have median earnings which are around 23 per cent more than those from lower income families. This partly reflects the different subject and institution choices of students from different socio-economic backgrounds. Once we control for institution attended and subject chosen, this premium roughly halves, to around 10 per cent.

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The dominant paradigm in the economics of education is human capital theory, which suggests that education and training are investments that make individuals genuinely more productive. Individuals who are more productive will, according to this theory, also have higher earnings and be more employable. Policy-makers around the world tend to accept unquestioningly the premise that investment in education and training is a good thing, with most committed to investment in human capital, including vocational education and training (VET), as a means of securing higher economic growth and national prosperity as well as achieving equity goals. However, there is also the view that education does not necessarily make a person more productive it simply acts as an expensive sorting device, to enable employers to identify more able individuals. Understanding the economic value of education and training, as measured by gains in wages, is important but not in itself enough to inform policy about the optimal type of education and training system. It is also crucial that we understand the technology of skill formation over the life cycle. For effective policy formation we need to know how different types of people can effectively acquire skills at different stages of the life cycle as well as the economic returns to those skills once acquired. This is particularly important in the area of VET, since international evidence suggests that the economic returns to some VET is low. The authors argue that effective, or at least informed, policy involves understanding more fully the nature of dynamic complementarities in the acquisition of skills over the life cycle and a better understanding of the differential sensitive periods in the accumulation of cognitive and non-cognitive skills.

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This report uses the new Longitudinal Educational Outcomes (LEO) administrative dataset to provide the latest estimates of the impact of higher education (HE) on individuals' early-career earnings after accounting for individuals' pre-university characteristics. This will provide vital evidence for prospective students choosing whether, where and what to study at university. We estimate the overall average impact of attending HE on earnings at age 29, and show how this varies for individuals studying different degree subjects or at different higher education institutions (HEIs), based on those who went to HE in the mid- to late-2000s. We also investigate how these returns might differ for students with different prior attainment, based on their GCSE results and whether or not they studied a maths or science ('STEM') A-level. We focus on those who start HE, rather than just on HE graduates, as this is the relevant decision facing prospective students.

This is the second in a series of reports by the Institute for Fiscal Studies, commissioned by the Department for Education (DfE), that makes use of the LEO dataset to improve information on the value of HE degrees [the first report, 'The relative labour market returns to different degrees', is available in VOCEDplus at TD/TNC 132.705]. The dataset, developed in collaboration with the DfE, tracks English students through school, college, university and into the labour market. This research looks at over 1,200 courses offered across UK universities. This report, for the first time, uses the dataset to compare individuals who went to HE to those with similar background characteristics who did not. All of our estimates (unless otherwise stated) report the effect of attending HE at age 18 on annual gross earnings at age 29, conditional on being in 'sustained employment'.

Among the main findings are: (1) those who attend HE earn a lot more on average than those who do not; (2) a large portion of this difference can be explained by differences in pre-university characteristics and once these are accounted for, we estimate the average impact of attending HE on earnings at age 29 to be 26 per cent for women and six per cent for men; if we focus on the impact of graduating, these returns rise to 28 per cent and eight per cent respectively; (3) not all degrees are the same, and subject choice appears to be a very important determinant of returns; (4) institution choice also appears to be highly important; and (5) for both men and women, there is wide variation in returns within every subject and every institution.

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This report provides a detailed analysis of the current economic value of the full range of vocational level 2 and level 3 qualifications held by the English workforce, focusing particularly on the economic return to National Vocational Qualifications (NVQ). The report addresses questions such as: which level 2 and level 3 vocational qualifications give particularly high wage or employment returns? Which sectors or occupations, if any, now see positive returns to NVQ2 and NVQ3 qualifications? The report also considers in general how wage returns to different qualifications vary by age acquired, subject, by region and by mode of acquisition. The report uses pooled quarterly data from the Labour Force Survey (LFS) for the period from 1997 through to 2006. The sample was confined to those aged between 16 and 65, and to those living in England.

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Despite the policy importance of lifelong learning, there is very little hard evidence from the UK [United Kingdom] on: (a) the extent of lifelong learning; (b) who undertakes lifelong learning and why; and (c) the benefits of lifelong learning. This paper attempts to address all three of these questions. Specifically it identifies the factors that determine whether someone undertakes lifelong learning, defined very narrowly for the purposes of this research as learning between the ages of 33 and 42, that results in a qualification. It then models the effect of the different qualifications acquired via lifelong learning on individuals’ economic outcomes, namely wages and the likelihood of being employed. The paper uses a rich longitudinal panel data set of individuals born in 1958, called the National Child Development Study [NCDS]. Our results provide strong evidence that there are employment effects associated with lifelong learning. Our research has highlighted some important research questions. Firstly, we need to improve our understanding of who is undertaking lifelong learning and why. Another point that needs to be borne in mind is that our study focuses on qualification-oriented learning and this is a very particular sub-set of all lifelong learning. Also, the possible differences between short-term and long-term effects of lifelong learning have not been explored in this paper. We intend to consider other potential, non-economic outcomes and to try to understand the motivation behind the extensive amount of lifelong learning that is evident in the NCDS data.

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After finishing compulsory education, young people in England have a range of higher education (HE) and further education (FE) options available to them. While people are familiar with the route taken by most HE learners - completing A Levels and then a degree at university - less is commonly understood about FE at tertiary level. In this note, we address this by describing the educational routes taken by individuals who choose to pursue tertiary-level FE courses. Additionally, we show how learners in different post-18 education routes differ by prior attainment, age and gender. As well as presenting descriptive evidence, we examine the association between different educational pathways and future earnings. Specifically, we present estimates of the early-labour-market returns (at age 26 and age 30) associated with different levels of post-18 qualifications.

We find that, on average, certain FE qualifications, such as Level 4 qualifications for men and Level 5 qualifications for women, are associated with higher average early-labour-market earnings than completing a degree. We find that these patterns hold even once we condition on observable characteristics. Whilst we use the term 'returns', we are careful not to claim that these estimates capture the causal impact of taking these qualifications, as there may be other factors that we do not observe that may potentially account for selection of different individuals into the different routes. This note is structured as follows. We begin by introducing the data and sample used in our study. Next, we present our emerging findings on the different routes taken through post-18 education, as well as the characteristics of learners in different routes. Finally, we investigate earnings outcomes for the different post-18 routes and what happens to those earnings outcomes once we condition on observable characteristics of the people taking them.

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Postgraduate education has expanded rapidly in the last couple of decades, with more than 350,000 students now starting a postgraduate course in the UK each year, compared with only around half this number 20 years ago. As increasing numbers of students consider postgraduate study, accurate information on the returns to the different options they face is essential for allowing them to make an informed decision on whether, where and what to study. Previous evidence on the returns to postgraduate study in the UK has generally implied that the returns are quite large and positive. However, the current evidence on postgraduate returns has faced serious limitations, primarily due to data availability. This report provides estimates of the earnings returns to completing postgraduate degrees for British and Northern Irish students studying in Britain. It uses the Longitudinal Education Outcomes (LEO) dataset to account for differences in individuals' background and prior university attainment to estimate the impact of postgraduate qualifications on earnings at age 35, relative to having an undergraduate degree and not proceeding onto further study.

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This report provides a summary of the current state of knowledge on the economic benefits of training. Economic benefits of training to the individual are considered in terms of higher wages and better job prospects, to the firm in terms of increased productivity and profitability, and to the economy in terms of higher economic growth and other benefits to the society as a whole. The authors begin by outlining a number of theoretical issues relating to the analysis of the impact of training. Empirical evidence on the benefits of training is then reviewed and the gaps and problems with the existing literature are identified. Finally, the authors consider future research that is needed to provide better information for policy-makers. Show less

The role of basic literacy and numeracy skills in the labour market is relatively under-researched in the United Kingdom (UK). The effect of basic literacy and numeracy skills on labour market outcomes was highlighted in ‘Improving literacy and numeracy: a fresh start’, a report by Claus Moser on the basic skills of adults in the United Kingdom (UK) which was published by the Department of Education and Skills (DfES) in 1999. This report revealed the high level of literacy and numeracy difficulties amongst the British population, and suggested that this ‘skill gap’ is one of the worst in Europe generally. The report recommended a National Strategy for Adult Basic Skills to reduce the number of functionally illiterate and innumerate adults. To investigate the possible benefits of such a strategy and to address the lack of research in this field, this paper provides an evaluation of the economic returns to better literacy and numeracy skills. The authors measure UK workers’ basic literacy and numeracy skills using data from the National Child Development Study (NCDS) and the International Adult Literacy Survey (IALS). The impact of these skills are evaluated particularly in relation to wages. The findings indicate better wage and employment returns for those workers with higher level literacy and numeracy skills.

‘Improving literacy and numeracy: a fresh start’ is indexed at TD/IRD 88.175. Show less

In this paper we evaluate the labour market value of basic skills in the UK, focusing on the wage and employment returns to having better literacy and numeracy skills. We draw on literacy and numeracy assessments undertaken by all cohort members of the UK 1970 British Cohort Study. The data used are very rich and allow us to account for potential ability bias, including as they do early childhood assessments of ability. We find that the literacy and numeracy effects on earnings are over and above any general effect on earnings from a person being more cognitively able. We also assess whether the value of basic skills, in terms of wage returns, has increased over time, using a cross cohort analysis based on the 1958 National Child Development Study cohort and the 1970 British Cohort Study. Our results show that literacy and numeracy skills retained their high value in the labour market over the period 1995-2004, despite numerous policy attempts to increase the supply of basic skills during this period.

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