Why it really does pay to get a good degree: you earn more

by Jamie Doward

Graduates who want to boost their earnings potential should avoid ending up with a “Desmond” or a “Douglas” and set their sights on a “Geoff” or an “Attila”.

A new study examining the relationship between educational achievement at university and pay later in life reveals that, when it comes to degrees, there is a significant hourly-wage premium for achieving a first, a “Geoff Hurst” in rhyming slang, or a 2:1, known as an “Attila the Hun”.

In contrast, those who end up with what students refer to as a “Desmond Tutu”, a 2:2, or a “Douglas Hurd”, a third, will suffer financially.

The study, Graduate Returns, Degree Class Premia and Higher Education Expansion in the UK, published by the Centre for Economic Performance at the London School of Economics, finds that, five years after university, graduates who qualified with a 2:1 or higher can expect to earn 7%-9% more than their counterparts with inferior degrees.

The study also finds that the premium for graduating with a good degree has increased between the Young Ones era of students and today’s Fresh Meat generation.

Research into the relationship between education and earnings has long established a strong positive association between earnings and university attendance, but until now there has been little analysis of how returns vary according to the level of academic performance at university.

According to the authors of the report – Robin Naylor and Jeremy Smith of the University of Warwick and Shqiponja Telhaj of the University of Sussex – this lack of research is surprising given that employers tend to rank candidates according to their grades or marks achieved. They point to a 2010 report from the Association of Graduate Recruiters which found that more than three-quarters of employers filtered out applicants who had not achieved at least an upper second.

The new study analysed data from the British Cohort Study for a single group of graduates born in a particular week in April 1970 and who graduated in 1991.

Telhaj and her colleagues were struck by the fact that the gap in earnings remains constant for years after graduation. “We obtain an estimate of a wage premium of 7%-8% for a good degree (a first or upper second) relative to a lower degree (a lower second or third) at the ages of 30 and 38. We view the estimated premium to be large when we consider that our estimate of the premium for a lower degree relative to A-levels is 11% at age 30.”

A surge in the popularity of a university education appears to be having an effect on long-term earnings potential. “As more young people obtain degrees, the premium for graduating with a good class of degree increases,” the academics note.

“We also find that the premium associated with the award of a first-class degree (relative to an upper second) grew significantly over the period of expansion.”

The academics believe that the UK’s degree system may need to become more nuanced if employers are to be able to better select new recruits. They argue: “If degree class acts as a crude sorting mechanism for graduate employers, then this might be a further justification for the current trend in the UK away from the traditional system based on degree classifications and towards the issuing of detailed transcripts and grade point averages.”

Party-loving students who get a “Douglas” may take consolation from the fact that market forces could end up closing the gap between them and their peers who end up with a “Geoff”.

The academics note: “If the continuing marketisation of higher education in the UK leads to further grade inflation through the awarding of a higher proportion of good degrees, then this is likely to reduce the premium.”