Graduates from poorer backgrounds earn less than richer peers on same course, major international study finds

Graduates from richer families earn significantly more than poorer students who do the same degree at the same university, a huge study of over quarter of a million people has found.

The research, which examined anonymised tax data and student loan records going back to 1998, found a marked link between parental income and earning potential of their children. Even after taking account of the subject studied and the university attended, the average student from a higher-income background earned around 10 per cent more than the average student from other backgrounds.

Between the richest and the poorest graduates the differential was even starker. The 10 per cent highest-earning male graduates from richer backgrounds earned about 20 per cent more than the 10 per cent highest earners from relatively poorer backgrounds. In 2012/13, the average gap in earnings between students from higher and lower-income backgrounds was £8,000 a year for men and £5,300 a year for women, 10 years after graduation.

The research, carried out by the Institute for Fiscal Studies with Harvard University and the University of Cambridge, is the first time that researchers have been able to take advantage of "big data" held by Government departments to carry out large-scale studies looking at outcomes over many years. It analysed how graduate earnings vary by institution of study, degree subject and parental income. The data set includes cohorts of graduates who started university in the period 1998–2011 and whose earnings are then observed over a number of tax years.

Jack Britton, a research economist at the IFS and an author of the paper, said that income inequality appeared to persist even among students with the same university experience. “This work shows that the advantages of coming from a high-income family persist for graduates right into the labour market at age 30,” he said. “While this finding doesn’t necessarily implicate either universities or firms, it is of crucial importance for policymakers trying to tackle social immobility.”

Neil Shephard of Harvard University added that another finding was the extent to which earnings varied according to university, subject, gender and cohort. “This impacts on which parts of higher education that the UK Government funds through the subsidy inherent within income-contingent student loans,” he said. “The next step in the research is to quantify that variation in funding, building on today’s paper.”

Jo Johnson, the Universities Minister, said the Government accepted that there was still a long way to go to improve social mobility. “We have seen record application rates among students from disadvantaged backgrounds, but this latest analysis reveals the worrying gaps that still exist in graduate outcomes,” he said. “We want to see this information used to improve the experience students are getting across the higher education sector.”

Dame Julia Goodfellow, the president of Universities UK and vice-chancellor of the University of Kent, said the sector was working to improve the situation. “Universities offer advice, work experience, sandwich degree courses, degree apprenticeships and job placements to give students direct experience and access to employers,” she said.

“Universities UK established a Social Mobility Advisory Group earlier this year to provide advice to government and support for English universities to improve access and long-term success for under-represented groups in higher education. It will look at many of the issues discussed in today's report.”

But she added: “Graduate earnings cannot however be used as the sole measure of success. As the report points out, there are now major regional differences in terms of average wages and many graduates choose to stay and work in their local regions.

“Some universities also train graduates for important jobs in nursing, the public sector and the arts, jobs we know that traditionally pay less on average but which make a critically important contribution to society and the economy.”

Median earnings for male graduates 10 years after leaving university were £30,000. For non-graduates of the same age, median earnings were £22,000.

Medical students were easily the highest earners at 10 years, followed by those who studied economics. For men, median earnings for medical graduates were about £50,000, and those for economics graduates were about £40,000.

Those studying the creative arts had the lowest income, earning no more on average than non-graduates.

Around 10 per cent of male graduates from the London School of Economics, Oxford and Cambridge universities were earning in excess of £100,000, with LSE graduates earning the most.

Around 12 per cent of male economics graduates earned above £100,000 after 10 years, but only around 9 per cent of their women peers. In medicine, 6 per cent of male graduates earned £100,000, but just 1 per cent of women.