THE BLOG
08/06/2018 14:10 BST | Updated 08/06/2018 14:10 BST

Your Background Matters When It Comes To Graduate Earnings - But Not As Much As What And Where You Study

Studying one of the top five business courses increases earnings by more than 50% than the average degree

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The graduates from different degrees earn very different amounts. Medicine graduates earn around twice as much as creative arts graduates five years after leaving university. London School of Economics (LSE) graduates earn more than twice as much as graduates from many lower ranked universities. But different degrees also take very different types of students. How much is due to the impact of the university courses themselves and how much of these differences are due to the fact that higher earning universities like the LSE admit students with higher prior attainment?

What matters for students when deciding what and where to study is not the raw differences in graduates’ earnings, but instead the likely impact of taking each degree. New research published today answers this question. By comparing similar students who take different courses, this research strips out the effect of differences in the type of students across degrees and estimates the actual impact of the degree on graduates’ earnings.

The findings are stark. Even when comparing similar students there is a wide variation in earnings across different courses. That is, students’ decision of what and where to study for Higher Education at age 18 has significant consequences for their future earnings.

Studying a medicine or economics degree increases earnings five years after graduation by 25% more than studying history or English. A degree from a Russell Group university increases earnings by around 10% more than a degree at the average university. And in turn attending a top institution - LSE, Oxford or Imperial - increases average earnings by at least 40% more than the average Russell Group university.

Even once students know what they want to study, the choice of university is important. Amongst universities offering the same courses there is wide variation in the potential impact of the degree on early career earnings. For example, returns to business degrees – which are high on average – vary hugely across institutions. Studying one of the top five business courses increases earnings by more than 50% than the average degree, whereas studying the same subject at one of the lowest return institutions increases earnings by less than the average degree.

Of course earnings are only one component of a degree students consider when making their decision. Students may care about many more aspects of a degree, such as enjoyment and the type of occupation they may end up in. For example, if you want a career as an artist or graphic designer studying creative arts is probably a good choice, even though the earnings returns to studying creative arts are 15% below the average degree. However, it is important students are informed about this trade off when they are making their choice.

This new research significantly improves the information on the earnings returns to university available to students and is a considerable step towards helping students to make well informed decisions. Whether students use this new information or not, one thing is clear: the decision of what and where to study has significant consequences for future earnings.

Jack Britton is a senior research economist at the IFS

Laura van der Erve is a research economist at the IFS