‘Generation crunch’ (or, what is happening to graduate jobs and the ‘graduate premium’ in the UK)

Early this week, the Centre for Enterprise (CFE) in the UK released their report Generation Crunch: the demand for recent graduates on SME.

The report is essentially concerned with the employment prospects for university graduates in Small to Medium Enterprises (SMEs) and makes for particularly interesting reading.

Focusing on SME’s as sources of employment is important because, as they note;

While there is a relatively clear picture of this demand from the public sector and larger businesses, much less is known about the demand from SMEs. This matters, as there are an estimated 4.8 million SMEs in the UK, employing 23.1 million people and together they account for 99% of all enterprises.

Several findings stand out in their report. The first is that the CFE’s survey of over 500 SMEs in the East Midlands region of the UK highlighted confusion over the graduate ‘brand’ with 29% incorrectly identifying A-Levels (that is an upper or senior school exit qualification in the UK) as a graduate qualification.

Even when furnished with the correct definition of a graduate level qualification, it is clear that the recruitment of Generation Crunch graduates is a minority pursuit — just 11% of SMEs had taken on a recent graduate in the past 12 months and only 12% indicated they would do so in the next 12 months.

Almost a third (32%) of those firms that were not hiring graduates reported that nothing would make them recruit a graduate in the next year and the reason for most was a lack of demand, rather than an inadequate or unsuitable supply of graduates.

In an interview this week with the Guardian, James Kewin, joint managing director of the Centre for Enterprise, is reported as saying:

There is not a clear or shared understanding of the term graduate among small and medium size businesses. There is a clear need to rationalise the plethora of qualification frameworks, levels and agencies that currently litter the education and skills landscape and to develop an easily understandable summary of what is and what isn’t a graduate-level qualification.

He said efforts to boost the proportion of graduates in jobs could have only a marginal impact. “Most small and medium size businesses that do not recruit reported that lack of demand, rather than inadequate and unsuitable supply, was their primary reason for not recruiting,” he said. “This suggests that the trend for increasing the employability skills of graduates will, in isolation, have only a marginal impact. The same is true of initiatives aimed at promoting, subsidising or improving access to graduate recruits. While they may lead to a short-term reduction in graduate unemployment, they do not address the fundamental barrier – lack of business need – that prevents most small and medium size businesses from recruiting.”

This is also particularly damaging news for the UK government at the current time, given that it is busy trying to encourage more students to enrol in university studies.

In the Foreword to the recent new ‘Framework for Higher Education’, Higher Ambitions, released in late 2009, the Minister for Business, Innovation and Skills – Peter Mandelson – promised that:

A university education can be an entry ticket to the best paid employment and a preparation for a globalised world of work (p. 24).

What makes the CFE’s research potential dynamite is the implications it has for the government’s review currently being led by Lord Browne, former Head of BP, on lifting the cap on university tuition fees in English, Northern Ireland, and Welsh universities with English students in them.

Image courtesy of Bianca Soucek

Lifting the cap on tuition fees is sold to students as compensated for by a  ‘graduate premium’. In other words, students who invest in university undergraduate studies (and with increased student fees they are investing more of their own funds in their studies) will continue to earn ‘considerably more’ over a lifetime than those who don’t.

Last year GlobalHigherEd reported on the OECD’s statistical evidence about declining graduate premiums, despite the OECD’s own strong claims about the positive economic returns from investing in university studies. We pointed out that the evidence is clear; the value of the premium holds only as long as its value as a positional good is secured. The greater the number of students entering university, the more the value of the premium reduces.

This, of course, is what is behind Lord Browne’s observations in early December, 2009 and reported by BBC news. Lord Browne  calculated the graduate premium as being  1/4  (£100,000) of the one claimed by government (£400,000); this inflated figure was also the one used by government when it justified its increase in the cap on university tuition fees (from £1,225 to £3,225) which was implemented in 2007. Had the value of a university premium declined, the press asked? No, said the government! The question, of course, is who are we talking about? Clearly everyone is not in the same boat, and some might not be in a boat at all.

In 2007 a study on the economics of a degree by PricewaterhouseCoopers for Universities UK produced a different figure for the ‘graduate premium’  –   of an average of £160,000. This study pointed out, however, that the ‘average’ concealed important differences between students – with medical and dentistry students earning a ‘graduate premium’ of around £340,000, humanities students around £51, 500, and arts students  £35,000. Now it is not difficult to do the maths on this one. Investing in an arts degree does not make for good economic sense.  Indeed PricewaterhouseCooper’s report that males with an arts undergraduate degree will earn 4% less than males who hold an A-level qualification only.

When faced with…

  • limited job prospects if the CFE’s data on SME’s and graduate employment is anything to go by
  • likely cuts in UK public sector spending as the government manages its worst financial crisis since the 1930s
  • knowledge that subject of study, gender, social class, income, non-traditional entry qualifications, and so on, can mediate the value of a ‘graduate premium’ (positively and negatively) and therefore should be placed into the mix of any hard-edged economic consideration
  • a poor return on investing in a university degree if studies are in areas like arts and humanities
  • a likely increase in the cost of university tuition after the election to inject funding into a limping university sector

…some students and their families could be forgiven for coming to the conclusion that a university education at all costs is simply not worth it as an economic investment in their future. This conclusion is likely to apply to families in other OECD countries, and not just the UK.

Governments might be better served if they came clean on the economic argument. Instead it should emphasize the value of university studies for social, cultural and political reasons (indeed the OECD’s recent Education at a Glance 2009, p. 176 cites figures which show that ‘political interest’ is enhanced by a 20 % point increase in probability when an individual has a tertiary education).

By recovering, valuing, and making prominent, these dimensions and outcomes of intellectual inquiry, we could then put such knowledge and capability to work on important global problems, like poverty, climate change, sustainability, and building more equitable and socially cohesive communities.

Susan Robertson

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s