Sunday, 28 August 2011

Graduate Earnings

Jonathan Hunt writes at LibDem Voice:
According to new figures published this week by the Office for National Statistics, graduates earn 85 per cent more than people with only GCSE qualifications over their working lives. Extrapolated over a 40-year career lifetime, graduates are likely to earn almost £1 million more than those on current average pay of some £25,000 pa.
When looked at from that end of the telescope, it does not seem too onerous for graduates to have to repay some £30,000 or so when as a result of that investment they earn many multiples of that sum. They will still be some £970,000 better off (before tax) than non-graduates by the time they retire.
He's been widely criticised there. He's made lots of mistakes in his methodology. Firstly, he picks GCSE as the comparator rather than the next-most qualified. Secondly, he ignores taxes. Thirdly, he ignores the extra years worked by those who stopped their education earlier.

Before correcting these mistakes it's also worthwhile pointing out that his chosen annual salary of £25,000 makes no sense. His source gives average hourly earnings for those who only have GCSEs as £8.68. In order for them to earn £25,000 a year they'd have to work for more than 9 hours a day, 6 days a week, 52 weeks a year. Not likely.

Anyway, the table below gives the values found from his methodology applied correctly with the points mentioned above (I assume 7.5 hours work a day for 230 days a year, or 1,725 hours a year):

Median hourly pay Annual Earnings (post tax) Career Length Total Income Difference
Degree £16.10 £21,248 40 £849,920 £0
Higher education £12.60 £17,142 42 £719,964 £129,956
A Levels £10.00 £14,092 43 £605,956 £243,964
GCSE grades A*-C £8.68 £12,544 45 £564,480 £285,440

This report (pdf, page 3) claims that graduates earns £149,761 more over a lifetime. Other values I've seen range from £100,000 to £160,000. So Jonathan Hunt had the right idea but was sloppy in his application.

No comments:

Post a Comment