Question

Empirically-Oriented Questions

Answer the below questions relating to the following table:

Labour Market Outcomes of Graduates and School Leavers, 2015

	Aged 25-29		Aged 30-59
% Graduates	41%		32%
% School Leavers	49%		54%
	Graduates	School-leavers	Graduates	School-leavers
Employment Rate	88.3%	78.7%	89.4%	83.2%
Hourly wages
10th percentile	£7.05	£6.25	£8.45	£6.53
Median	£12.36	£9.21	£17.31	£11.33
90th percentile	£23.08	£15.93	£34.63	£22.13

Source: Blundell, Green and Wenchao (2016)

Notes: Calculations are based on Quarterly Labour Survey data for the UK using all four quarters of 2015. Graduates are defined as people with first degrees or higher qualifications. School leavers are defined as people with at least GCSE grade C or equivalent qualifications and without first degrees. School leavers include those with just A-levels or below degree level higher education qualifications.

1. a) Calculate the gross rates of return (in percentage terms) for graduate employees for all six groups in the table (i.e. 2 age categories * 3 points in wage distribution. You can also assume that graduates invest in 3 years of post-compulsory education). Which group has the highest rate of return? Which has the lowest?

2. Why do the rates of return vary for workers located at different points in the distribution of wages, as well as for the two age groups?

2. a) Why do the figures that you have calculated not necessarily provide accurate estimates of the gross rates of return to having a degree? (i.e. what other factors are likely to account for some of the differential and what other methods could be used to calculate returns to education?)

2. Why are employment rates also higher for graduates?

Policy-Related Questions

1. What do the human capital and signalling explanations, identified in the theoretically-oriented questions, imply for government policy towards higher education?

2. How do you think that such explanations might have influenced recent changes in the financing of higher education in the UK?

Answer 1