Introduction

In recent years, there has been more interest in investigating the returns on education
the possible links between employment and the subjects of graduates. The results of
some research projects reflected that Economics graduates’ starting salaries are
significantly higher than graduates of other social science majors such as sociology.

“Education, education, education”, was Tony Blair’s answer when asked to

summarise New Labour’s policy focus in 1997. Education has been at the forefront of
policy and has been subject to heated debates certainly for the last two decades.

This paper will look at the earnings of economic graduates in the UK and establish
what factors affect their earnings. Most previous studies which relate specifically to
the earnings of economic graduates focus on comparing economic graduates earnings
or salaries to that of graduates from other degrees, see for example The Earnings of
Economic Graduates (Dolton and Makepeace, 1990) and also specific comparison to
course seen as close substitutes for economics such as Business, Management and
Law, for example Why study economics? The private rate of return to an economics
degree (Lewis et al, 2004). This paper will briefly examine how undergraduate
earnings for economists fair relative to other degree courses.

In 1988 the government replaced local authority maintenance grants with student
loans, in 1998 tuition fees were introduced for all full time students in higher
education and by 2006 tuition fees tripled (£3,000) for all new graduates. The increase
of fees in 2006 was politically contentious, it sparked fierce debate and polarised
people between those who favoured fees and those who were against it because they
believed this would deter students from poorer backgrounds from applying.

Indeed many of those who favoured of tuition fees went further and argued for ‘top-
up’ fees which were differentiated by degree course and by university. In a report
published by the BBC in March of this year stated that two-thirds of vice-chancellors
said they wanted to raise fees to levels between £4000 and £20,000. A recent paper
argued that the going to an ‘elite university’ in the UK (one in the top quartile) rather
than a university in the bottom quartile would increase your pay by 10-16% (Hussain
et al, 2008). Evidence from Robin Naylor, Jeremy Smith and Abigail McKnight in
2000, also supports the claim that going to a ‘high premium’ rather than ‘low
premium university’ increase your earnings. Therefore this paper will continue to
explore this possibility, if its findings agree with the above papers it will then suggest
the government re-evaluates the costs and benefits of variable fees.

Many universities require a minimum of maths a-level to study economics, yet there
has been little analysis to the actual returns of studying maths a-level. The Return on
Post-Compulsory Mathematics study (Dalton and Vignoles, 2000) estimates that
graduates with a-level maths will earn 7-10% more, certias parabus, than those
without a-level maths. This paper will further assess the rewards of a math a-level for
economic graduates.

This evidence of this paper will be useful for student, universities and policy makers.
This will affect potential students’ decision about what university they go to, basing
their decision on financial returns of different universities. Interestingly it will be
helpful to GCSE students when making decisions on A-level courses, for example if
they take maths or even further maths at A-level. This paper may provide evidence
key for universities and their vice chancellors that believe the type of course and
university offers higher returns and therefore advocated variable fees. Finally this
paper will provide essential information to the government and policy makers who
have to make decisions on policy regarding variable fees and possible changes in
curriculum.

Summary Statistics

Our research and analysis is based on the USR dataset which has information of
students leaving university in 1991. The 1991 University Statistical Record had a total
observation of 101,861 students. We are primarily interested in the correlations
between the occupational earnings of Economics students; hence we dropped the data
for non-Economics students, leaving with 4695 observations. Among Economics
students from all universities, the top 4.8% achieved a First Class degree, while
37.8% obtained a Upper Second, 35.3% Lower Second, 6.8% Third class honour
degree. For the rest 15.3% we grouped those who either failed in obtaining any
qualifications, or not providing this information, or based on other qualification
system other than this degree classification.

However, it is obvious to raise the question if the student comes from a university
highly ranked in the league table differentiates in his/her academic performance with
a student whose university is ranked in the lower quartile of all institutions. While
keeping the variable Oxbridge which includes all the students graduating from Oxford
and Cambridge, we created a new variable grouping the 18 universities other than
Oxbridge that are in the Russell Group, which is generally recognized as . Research
undertaken by the Centre for Economics of Education has identified an average wage
premium of nearly 10% (9.4%) for a graduate from a Russell Group university
compared to a graduate from a modern university.

With respect to social class, 58.3% reported their parental occupations are in Social
Class I (Professionals & Intermediate), 18.7% come from Social Class II (Skilled
Occupations), 5% from Social Class III (Partly Skilled Occupations) and 0.9% from
Social Class IV (Unskilled Occupations). There is a possible bias in terms of social
background. We should take into account of the relevant unobserved factors, which is
typically treated as exogenous, for example students’ effort put into studies, how
much attention is paid towards their studies from their parents because parents with
lower occupations tend to motivate their children less.

Data Analysis

To begin our analysis, we initially concentrated on the following variables to ascertain

which factors resulted in higher weekly earnings for Economics Graduates:
(i) Gender

(ii) Marital Status

 (iii) Whether the graduate is an Overseas Student

(iv)Quality of university a graduate attended: either a)Oxbridge or b) Times

University 2009 League table- top 10 universities

(v) Degree class

(vi)Whether the graduate attended an Independent school

(vii) The effect of A level Mathematics and A level Higher Mathematics

(viii) Graduate career choice

(ix)Social Class of the graduate, dependent upon parent’s background.

Our research allowed us to trim this broad range of variables down, indicating that
some of the above were in fact irrelevant to the analysis or proved to be less important
in terms of policy implications.

1. Marital status

Paper x described that marital status does not in fact have any statistical
significance on earnings.

2. Whether the graduate is an overseas student

Our project is aimed at analysing the effect of graduates in the UK, who also end
up working in the UK. As paper x describes, the variable on overseas students is
unreliable for the very fact that through having the choice of residing in or
originating from another country, overseas students will only work in the UK if
the opportunity cost of working abroad or at home is less that working in the UK.
This means that it is likely that they are only remaining in the UK because they
are receiving higher earnings already, resulting generally in higher average
earnings for overseas students

3. Social Class of the graduate

Although

Our first regression hence took the following form:

ln( earn) i =β
female
1 +i αoxbridge
1 + µi 1 λ
+
topuni i 1 +λ
degreeclass i +2λ
degre +
i 3 eclass i degre
λ4 degreeclassγ i 1+ δ +ω
Independentsch + iυ
i 1math ++
1himath i 1 first + i occlegal
υ2 firstocc υPr i + υ + i 4 firstoccmana
3 firstoccecon ge i +υfirstoccgenad
5 +i
υ6 firstoccteaching
ε i +i

We were able to carry out a number of tests to check for biasness, heteroscedasticity
and multicollinearity.
We were able to fail to reject the null hypothesis of homoscedastic errors using the
Breusch-Pagan Test, resulting in no need to use robust standard errors.

We were able to analyse the following coefficients on the regression, comparing this
with our understanding of each variables impact through prior research

(i) Gender

The coefficient on female represents the proportionate change in weekly earnings

for females relative to males. It shows that female Economics graduates will earn
roughly 41.45% less that male economics graduates. We found this to be an
unusually high figure, even taking into account that the survey is 18 years old. Our
research, however, does support the view that male graduates earn more than their
female counterparts (Naylor et al., 1993). Naylor, Smith and Mc Knight (1993)
find that “female average earnings are about 75% of male earnings”, of which
only 3 percentage points could be explained by difference in average
characteristics. Gender graph flat.

(ii) Oxbridge

We created a dummy variable for those who graduated with an Economics degree
from Oxbridge, finding that those who have attended Oxbridge earn roughly
10.2% more than those that attend other universities. These findings were to be
expected through research carried out by ...

(iii) Top Universities

Much to our surprise, we found that attending what have been considered the top
ranking institutions leads to a modest proportionate increase in earnings of 1.43%,
much lower than the difference accounted for in the LSE paper. They found that
people attending Russell Group Universities would in fact expect earnings return
roughly 7- 10 % higher than those that did not. Instrumental variable etc...

When constructing an individual F-test on the dummy, we found it to be

statistically insignificant. This could be because..would add dummies for them
being better in the first place, not necessarily the teaching of the institution

(iv)Degree Class

After constructing dummies for classes, ranking for a First down to a Third Class
degree, and using the Upper Second Class dummy as a default, we yielded results
from the regression that were expected. Graduates that gained a First Class earned
proportionately 2.94% more than those than gained an Upped Second. In the same
instance, those who received Lower Second or Third Class degrees earned
proportionately 3.6% and 4.5% less respectively. Add stuff from papers

(v) Independent School

We found that the dummy constructed for whether a graduate attended an

independent school or not was in fact statistically insignificant. Despite this, we
still found that those attending independent schools were likely to earn
proportionately 2.2% more than graduates did not. The dummy may be
insignificant as there are a number of instruments that could be included to deal
with endogeneity, including say a variable on natural ability or quality of Alevel
and GCSE’s. Paper x, also speaks of the problems associated with such a variable,
including the fact that we may not be able to account for the fact that graduate
may have received better networking opportunities than those who attended state
schools. This may allow them to land the best jobs, and hence gain higher
earnings.

(vi)First Occupations

We found that the mean number of Economics graduates first worked in the career
area of Accounting and Finance. When using this category as the default, and
comparing the earnings of other professions that Economics students from the
dataset were likely to go into, we found that those who entered the Legal (34.9%) ,
PR & Marketing (4.2%), Management (6.68%), Teaching (4.71%) and Economics
and Stats (15.37%) Professions were likely to earn proportionately more than
those in the default category. Only those who entered jobs of an Administrative or
Secretarial nature earned proportionately 20.1% less than those in the area of
Accounting and Finance.??????

(vii) Maths

We found that Economics graduate who obtained a Mathematics A level earned

proportionately 0.56% more than those that had not. We found this result to be
inconclusive in term of previous research that had been undertaken. When doing a
t- test we found this to be statistically insignificant.
(viii) Higher Maths