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Big data shows the graduate pay premium is bigger for women

Anonymous — Fri, 25 Sep 2015 09:51:04 +0000

A new study using big data has confirmed that those who complete university can expect to earn, on average, a decent premium for their degree. This alone won’t come as a shock – previous studies have shown that attending university pays off for most graduates. But my colleagues (Neil Shephard of Harvard ̽��ֱ�� and Jack Britton of the Institute for Fiscal Studies) and I confirmed that this “graduate premium” is much higher for women than for men.

Using government administrative data, we looked at the median earnings of English men and women ten years after their graduation. We found that women graduates earn three times as much as women without a degree, while male graduates earn around twice as much as male non-graduates.

While women benefit more from their degrees than men, the gender gap in graduate earnings remains stark.

Using big data

Part of what makes this work novel is our use of big data – specifically, government administrative data in the form of tax and student loan records for over 260,000 graduates, collected up to ten years after their graduation. This is the first time a “big data” approach has been used to look at graduate earnings in England.

Previous work has estimated the premium earned by graduates using survey data. But the administrative data give a much more accurate picture than existing surveys, which tend to be based on much smaller samples of people who self-report their earnings, which makes the information subject to biases.

Using this anonymised tax data and student loan data, we looked at cohorts of graduates who started university in the period from 1998 to 2011, and observed their earnings (or lack thereof) in the tax year 2011/12 – though the results hold for graduates in other tax years, too.

̽��ֱ��work, funded by the Nuffield Foundation, suggests that survey data has previously underestimated the earnings of graduates, particularly higher earning graduates. These new data indicate that ten years after graduation, 10% of male graduates were earning more than £55,000 per annum, 5% were earning more than £73,000 and 1% were earning more than £148,000.

Ten years after graduation, 10% of female graduates were earning more than £43,000 per annum, 5% were earning more than £54,000 and 1% were earning more than £89,000.

Our analysis is not causal, since we are simply comparing the earnings of graduates and non-graduates. Still, the results add to the evidence that, on average, graduates fare much better in the labour market than non-graduates.

Hit by recession

̽��ֱ��study also produced a number of other interesting findings. Crucially, we found that the recession had a large impact on the earnings of people in their 20s and early 30s. This is particularly true for women, who experienced much lower earnings than previous cohorts. Over a four year period, men’s earnings were cumulatively 14% lower than expected, based on previous cohorts. For women over the same period, they were 20% lower than expected.

We’ll have to wait and see what this means in the long term, but there is no doubt that the recession has taken a toll on graduates in these cohorts in the short term.

Yet the research also indicates that graduates fared better than non-graduates through the recession – that is, they saw proportionally smaller drops in their earnings. So it also appears that higher education provided some protection from the economic downturn.

As with any study, there are limitations to the analysis. We used administrative data from both the Student Loan Company (SLC) and Her Majesty’s Revenue and Customs (HMRC) to observe how the earnings of students who take out a loan from the SLC change through the years as they mature in the labour market. This means we can only identify graduates who have borrowed money from the Student Loan Company, which is around 85% of English graduates in the period we looked at.

This means that there are some graduates whose earnings we cannot identify. Even so, we have reason to believe that they are likely to be higher earning graduates, on average if we assume that those who don’t take a loan are likely to come from more advantaged backgrounds and hence on average have higher levels of prior achievement and attend higher status institutions. If anything, the data we used is likely to underestimate average graduate earnings.

Despite these caveats, there is no doubt that this type of big data analysis allows us to better understand how earnings evolve during a graduate’s career. This is important if we are to understand not only the extent of the graduate wage premium, but also how earnings vary across different types of graduates.

Anna Vignoles, Professor of Education, Jesus College, ̽��ֱ�� of Cambridge

This article was originally published on ̽��ֱ��Conversation. Read the original article.

̽��ֱ��opinions expressed in this article are those of the individual author(s) and do not represent the views of the ̽��ֱ�� of Cambridge.

Anna Vignoles (Faculty of Education), together with colleagues at the Institute for Fiscal Studies and Harvard ̽��ֱ��, authors a study that finds women with degrees earn three times as much as non-graduates within a decade of leaving university.

There is no doubt that this type of big data analysis allows us to better understand how earnings evolve during a graduate’s career

Anna Vignoles

Caro Wallis

Congratulations, Graduates!

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Graduates who went to private schools earn more than graduates who did not, finds study

fpjl2 — Fri, 31 Oct 2014 14:59:21 +0000

New research shows that graduates who went to private schools earn substantially more than those who went to state schools. Even amongst graduates who went to the same university to study the same subject and who left with the same degree class, those who attended private school earned on average 7% more.

Previous work by the researchers found that graduates who attended private schools are more likely to enter higher status and higher paying occupations. But, once they matched occupations in the comparison fields for the latest research, latest research showed that those who went to a private school still earn 6% more, on average, than those who went to a state school. This is currently equivalent to around £1,500 a year.

̽��ֱ��findings suggest that even when universities widen participation to students from poor backgrounds, there are social inequalities in the success of graduates when they leave higher education.

̽��ֱ��new study, published recently by the Institute for Fiscal Studies, and funded by the Nuffield Foundation, concludes that further research is needed to determine the causes behind the pay gap - whether it is access to particular social networks or better non-cognitive skills such as confidence or self-esteem. Regardless of the explanation, the authors suggest that these results add further weight to the argument that higher education is not the great leveller it was hoped to be.

“Whilst universities have been making strenuous efforts to widen participation in recent years, what happens after students leave their university is also enormously important for their prospects for social mobility. If higher education is to be a route to social mobility then the link between family background and adult outcomes must be broken, or at least reduced, for graduates,” said study co-author Professor Anna Vignoles, from Cambridge’s Faculty of Education.

“These results suggest that there is a pressing need to understand why private schooling confers such an advantage in the labour market, even amongst similarly achieving graduates.”

Researchers used longitudinal samples from the Destination of Leavers from Higher Education survey to look at gross annual earnings six months after graduation, with a sample of 75,000 graduates and for a subset of these they looked at earnings three and a half years after graduation.

̽��ֱ��researchers found that after six months the graduates who attended private school earned an average of £3,000 more than their state school contemporaries. They then looked at the earnings of graduates who left university in 2007 in January 2011, approximately three and a half years later. After this time the gap had increased, with former private school pupils earning an average of £4,500 more than those who attended a state school - amounting to a pay gap of roughly 17%.

Arguably this might be expected, say the researchers, as some of the higher earnings of graduates who attended private schools is down to the fact that they have better A-level grades and this in turn enables them to go on to attend more prestigious universities and study subjects which tend to be more highly rewarded.

But once the researchers analysed graduates who went to the same university to study the same subject and who left with the same degree class, those who went to private schools still earn an average of 7% more three and a half years after graduation.

Amongst graduates from the same backgrounds, who studied the same subject in the same university, and who went into the same occupation, those from private schools still earn 6% more, on average, than those from state schools.

“Our research shows that, even amongst those who succeed in obtaining a degree, family background – and in particular the type of school they went to – continues to influence their success in the work place,” said co-author Dr Claire Crawford, from the ̽��ֱ�� of Warwick’s Department of Economics.

Implicit within government policies to achieve social mobility through improving school and university results is the assumption that once a person has graduated from university, their family background and the school they went to will cease to impact on how much they earn, say the study’s authors, writing for the website ̽��ֱ��Conversation.

“But our new research proves that there is actually a strong relationship between the kind of schools graduates attended and their success in the labour market. Future research might usefully focus on why the influence of family background lingers long beyond graduation,” they write.

New study shows that - even after controlling for subject, degree class, alma mater and occupation - graduates who attended private schools earn on average 6% more than those who attended state schools.

If higher education is to be a route to social mobility then the link between family background and adult outcomes must be broken

Anna Vignoles

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Following the money

sc604 — Fri, 25 Apr 2014 07:05:00 +0000

Pay for performance matters. It’s a practice that crosses sectors, affects millions of employees globally and regularly makes the headlines. But there’s a problem, says Dr Jonathan Trevor, Lecturer in Human Resources & Organisations and Co-Director of the Centre for International Human Resource Management (CIHRM). It might not work.

“Companies don’t like to talk about this,” he says. “But we need a debate on this issue, because pay for performance is widespread, and has become the dominant logic of employee reward – the notion that we can use pay as a carrot, or a stick, and drive positive employee behaviour. In reality, I believe pay is like plumbing. You only ever notice it when it goes wrong. It can be used in good or bad ways – but often it is the latter. It is often misused, or used inappropriately, as a crutch for poor leadership – especially in the financial sector.”

For five years, Dr Trevor acted as a retained academic advisor to ̽��ֱ��Remuneration Group, a consortium of senior remuneration directors working in FTSE 50 companies who met each year for a two-day round table and research exposition in Cambridge. As director of ConsultCambridge Ltd, he brings together the academic and business world to find new ways of applying theory to practice.

"It’s very much a two-way street,” he says. “We meet with extremely senior people from the UK’s most successful companies who work side-by-side with researchers to identify a research agenda. They, in turn, feed back from their own research and help the business leaders to understand what it means in their own context, and what they might do differently in terms of driving performance and, crucially, managing risk."

̽��ֱ��theory behind pay for performance is logical: it helps to establish a line of sight between the individual and their contribution to the organisation’s goals and purposes.

But when it goes bad, the consequences can be highly destructive. Dr Trevor points to the ongoing payment protection insurance (PPI) mis-selling scandal that has thus far cost banks £22.2 billion in compensation. Employees were given a financial incentive for each policy they sold. They were, indeed, highly motivated to sell more. But, says Dr Trevor, it didn’t work.

̽��ֱ��incentives in question drove a certain type of behaviour – aggressive sales at any cost. But that behaviour was not functional. It caused both reputational and financial harm and was ultimately counterproductive.

In the mis-selling scandal, the pay structures were relatively simple. But the other main problem with pay for performance, says Dr Trevor, is its complexity, a central theme of his book Can Pay Be Strategic? A Critical Exploration of Strategic Pay in Practice. ̽��ֱ��way we work is changing, and pay for performance is struggling to keep pace. Companies necessarily need to rely more and more upon the discretion of their people, as opposed to requiring them to simply follow, or perform against highly prescribed targets. In that context, pay for performance becomes vastly complicated and therefore less effective as a means of management control.

“Selling Mars bars is one thing,” says Dr Trevor. “Creating a market-changing innovation or technology is quite another. How do you incentivise someone in a research and development department when it might take 10 years for their work to bear any commercial benefit and when the actual innovation process is quite serendipitous?”

How indeed? Why might people work hard, if not for extra pay? Dr Trevor points out that, surprisingly, research shows that money consistently comes very low down the list of potential motivational factors. Although it’s often mentioned in exit interviews as the reason why someone leaves, more in-depth research shows that people don’t leave companies because of the money. (In fact, he says, they don’t leave companies at all. They leave managers.)

He cites three main motivators: “First: a common purpose. Does the company do meaningful work – and does the individual understand his or her role within it? Second: engaging work. Jobs can be constructed in such a way as to make them naturally engaging, challenging and have clear impact. And third: good management.

“ ̽��ֱ��by-product of these is that not only a more capable workforce, but actually they are naturally engaging processes. They can be more powerful than just simply an annual performance review and pay bump. And ultimately, the absence of those things cannot be made good by either paying people more, or paying people more aggressively.”

It’s still hard for companies to admit that new thinking is needed. But the numbers say that the conversation is changing. “If you look at trend statistics, many companies are actually moving away from pay for performance,” says Dr Trevor. “They are disconnecting performance management and pay – and realising that pay as a consequence to either good or poor performance is actually just disconnecting people from what performance management should be – an honest and forward looking conversation that connects the individual with the purpose of their employer.”

Does performance-related pay work? Dr Jonathan Trevor explores the issues.

Pay is often misused, or used inappropriately, as a crutch for poor leadership – especially in the financial sector

Jonathan Trevor

Bruce Thomson via flickr

Carrot and stick

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