The more you learn – the more you earn!?

Sandra Dettmer

University of Wales Trinity Saint David, Swansea Business Campus, High Street, Swansea, Wales, SA1 1NE; sandra.dettmer@uwtsd.ac.uk

5th May 2017

Abstract

This study looks at the returns to education. This relationship between education and earnings has been studied by many labour economists in the past and the studies generally confirm a positive relation between the two variables. Relevant literature suggests that each additional year of schooling is associated with an 8-13% rise in hourly earnings in later life.

As education seems to be financially rewarding, it is no surprise that more and more young people in the UK decide to go to University. The latest UCAS report (2015) refers to a record number of students in the UK with 532,300 people entering higher education, which is an increase of 3.1% on 2014.

Based on that observation and following the economic principle of supply and demand, the question arises whether this positive relationship can still be confirmed for the UK? As more graduates join the labour market, the supply of highly educated employees increases which could eventually result in lower premium for graduates. 

Technology also seems to distort the simple rule that more formal education automatically leads to higher earnings. A paper by Beaudry et al. (2013) highlights a decrease in the share of employment accounted for by high-skilled jobs. This forces better educated individuals into jobs for which they are over qualified and for which they are less well paid.

This paper employs the most recently available data from the Labour Force Survey (LFS) to investigate the returns to education in more detail. It will look whether the returns to education have changed over time and also investigates regional differences across the UK, i.e. is there are larger financial incentive to graduates in London or the South – East than it is in Wales? Furthermore, it also addresses the gender issue and tests whether the returns to education are different for males and females.

The final question arises in terms of policy recommendations, but more importantly: what is our message to the future generation?