Education, earnings and productivity - recent UK evidence

Abstract

Participation in post-compulsory education has grown dramatically in the UK in recent times. The proportion of young people going to university to study full time has increased from 13 per cent in 1980 to 33 per cent in 2000. The relationship between educational levels and wage rates in the Labour Force Survey (LFS) suggests that there is a high financial return to education. However, the LFS also reveals that this varies considerably across individuals, and degree subject plays an important role with Arts degrees having little affect on average wages, while studying Economics, Management and Law have large effects. This article attempts to answer the question whether a massive investment in higher education is economically justifiable, by taking a narrow view of the returns to education in terms of additional earnings associated with increased education. The article also considers whether there is evidence that the expansion of higher education has so flooded the market with highly educated individuals that the return to additional education has reduced, and whether admitting weaker students results in less productive ‘outputs’ from education. Other questions relate to whether education directly affects people’s workplace productivity either depending on the relevance of their degree subject or because more education may act merely as a signal of higher productivity.

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