21 June 2014ESPE 2014 Braga1 Graduate returns, HE expansion and ability composition Based on joint work with Jeremy Smith and Shqiponja Telhaj Motivation Policy (HE Fees regimes: Dearing, Browne ) Variation by gender, subject, university, background, cohort, cohort characteristics (age-participation index, API) Educational Returns: Returns to What? Years? Qualifications? Performance?

21 June 2014ESPE 2014 Braga2 Educational Returns: Returns to What? Years? Qualifications? Performance? Variation by performance measure: If HKT:econometrician suffers info’ asymmetry estimates of performance premium suffer ability bias extent of bias likely to vary with API If Signalling:employer suffers info’ asymmetry return to education is a return to signalled ability (short-lived under EL-SD) return is likely to vary with API

21 June 2014ESPE 2014 Braga3 Educational Returns: Returns to What? Years? Qualifications? Performance? Prospective students are interested in variation by performance measure: Bigger Variation => greater risk If HKT:individuals uncertain of their capacity to acquire HK If Signalling:individuals uncertain about ability & signals might have long-term effects (contrary to EL-SD)

21 June 2014ESPE 2014 Braga4

21 June 2014ESPE 2014 Braga5 Ability composition and returns to ability Assume:

21 June 2014ESPE 2014 Braga6 Ability Composition The US college wage premium: theory and evidence And also Hendricks and Schoellman (2013).

21 June 2014ESPE 2014 Braga7 What happens if HE API grows? There is no change in. But this is a special result under the uniform distribution. Blackburn and Neumark show that under a triangular distribution, falls. Ability Composition: Graduate returns in the UK

21 June 2014ESPE 2014 Braga8 What happens to and hence the ‘performance premium’ with an increase in the API? Even under the uniform distribution, the performance premium will increase as the ability gap is stretched…

21 June 2014ESPE 2014 Braga9 0 1 a f(a) O 50 A 36 L 8 H Ability distribution across broad educational groups; 1985 characterisation.

21 June 2014ESPE 2014 Braga10 Let’s now turn to the evidence. 1.What is the evidence on returns to degrees in the UK? (BCS70 relative to NCDS 1958) 2.Is there a substantial ‘performance premium’ among graduates? (High vs Low degree class) 3.Has any such premium changed over time in the way consistent with ‘composition-induced changes in ability bias’?

21 June 2014ESPE 2014 Braga11 Results 1: UK evidence on returns to a degree (1970 birth cohort) HE APIHE API (%) +4 cohorts 1 MenWomen NCDS14% 14% (1977) Birth cohort(17%,11%) (men, women) BCS (1989) Birth cohort(19%,17%) (men, women) 1 Eg, entering HE in 1993, graduating in 1996, 4yrs experience by 2000 when £ observed of 1970 birth cohort. 18%30%1518

21 June 2014ESPE 2014 Braga12 Results 2: UK evidence on returns by degree class Note RDD approach of Feng and Gaetz, LSE 2013: Implied estimate of ca. 8% for ‘good’ over ‘lower’ degree (Is that high or low…?) Consider relative to College Wage Premium: BCS70 and LFS… Mean (2-digit) SIC earnings, DLHE (6 months), 4 cohorts, ca500 students per cohort, , matriculating (API stable at ca3 5% - similar to API for our 1998 HESA cohort).

21 June 2014ESPE 2014 Braga13 Results 2: UK evidence on returns by degree class (‘1970’ birth cohort) - Estimated log wage premia (BCS70) (1)(2)(3)(4) Wages observed in year: Wages observed at age:30 38 Good degree class premium relative to lower degree class (0.007) (0.012) (0.040) (0.074) Lower degree class premium relative to 2+ A-levels (0.000) (0.000) (0.000) (0.000) Ability and background controlsNoYesNoYes Other controlsYes No. of Obs R2R Notes: p-values in parentheses. Ability controls include: BAS (verbal), BAS (numerical). Background controls include: parental income, parental social class, mother ’ s interest in education, father ’ s interest in education, mother ’ s education, father ’ s education. Other controls include: region (aged 10), gender, marital status and number of children, ethnicity.

21 June 2014ESPE 2014 Braga14 Results 2: UK evidence on returns by degree class (‘1970’ birth cohort) - Estimated log wage premia (LFS: births) Notes: p-values in parentheses. Wages observed between 2005Q1 and 2012Q4 and have been deflated by the average earnings index. Other controls include: gender, marital status and number of children, ethnicity and tenure with current employer. Wages observed at: Wages observed at age:36-41 Good degree class premium (relative to lower degree class) (0.001) Lower degree class0.188 (relative to 2+ A-levels)(0.000) Other controlsYes No. of Obs2930 R2R

21 June 2014ESPE 2014 Braga15 Results 2: UK evidence on returns by degree class BCS70 and LFS have cell size limitations… …so consider full student populations and administrative data…

21 June 2014ESPE 2014 Braga16 Results 2: UK evidence on returns by degree class (‘1970’ birth cohort) - Estimated log earnings premia (USR91: births) Note: p-values in parentheses. Ability controls include: pre-University qualifications. Background controls include: social class of parents, school- type. Other controls include: gender, marital status, University attended and type of degree course. Earnings observed at:1992 Earnings observed at age:21-23 Good degree class premium relative to lower degree class (0.000) (0.000) Ability and background controlsNoYes Other controlsYes No. of Obs.22,459 R2R

21 June 2014ESPE 2014 Braga17 Results 2: UK evidence on returns by degree class The USR administrative data has two limitations: Graduate 4-digit occupations, rather than personal wages Graduate destinations after only 1 year. So consider Graduate Cohort Surveys…

21 June 2014ESPE 2014 Braga18 Results 2: UK evidence on returns by degree class (‘1970’ birth cohort) - Estimated log wage premia (GCS1990: births) Note: p-values in parentheses. Ability controls include pre-university qualifications, background controls include parental education, and other controls include age, gender, ethnicity, and marital status. (1)(2)(3)(4) Wages observed at: Wages observed at age Good degree class premium relative to lower degree class (0.014) (0.014) (0.014) (0.014) Ability and background controlsNoYesNoYes Other controlsYes No. of Obs R2R

21 June 2014ESPE 2014 Braga19 Results 3: Evidence on Performance Premium across cohorts

21 June 2014ESPE 2014 Braga20 Results 3: UK evidence on returns by degree class (across cohorts) Estimated log-wage good degree class premia (LFS) – selected birth and age cohorts. See notes to Table 2 for controls included in these models. Birth Cohort1973/741975/761977/781979/80 Wages observed at: Wages observed at age: Good degree class premium relative to lower degree class (0.070) (0.246) No. of obs R2R Wages observed at: Wages observed at age: Good degree class premium relative to lower degree class (0.001) (0.001) - No. of obs R2R Wages observed at: Wages observed at age: Good degree class premium relative to lower degree class (0.012) (0.005) -- No. of obs R2R

21 June 2014ESPE 2014 Braga21 Results 3: UK evidence on returns by degree class (across cohorts) Estimated log-earnings premia (USR; HESA: selected cohorts) and by university type, graduates aged Cohort All (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) HE pop n 14% 15% 16% 18%20% 22% (30%) R2R Old Civic Universities (0.00) [36.1][36.5][36.7][36.3][35.9][36.5][35.5][36.7][36.6] [33.3] New Civic Universities (0.00) [15.7][15.3][15.6][15.4] [15.7][16.2][16.1][16.7] [15.1] E-CAT Universities (0.03)(0.00) (0.07)(0.00) [14.1][13.9][13.6][13.7][14.3][14.0][13.8][14.3][14.2] [15.6] 1960s founded Universities (0.00) [15.8][15.7][15.4] [15.9][15.7][16.3][15.9][15.7] [16.8] Other Scottish Universities (0.09)(0.23)(0.02)(0.05)(0.13)(0.00)(0.01)(0.00) [8.5][9.0][8.9] [8.7][8.5][8.1][7.5][7.7] [8.0] Other Welsh Universities (0.28)(0.01)(0.11)(0.16)(0.36)(0.03)(0.97)(0.00)(0.01) (0.00) [2.5][2.4][2.6][2.9][2.7] [2.8] [2.9] [5.0]

21 June 2014ESPE 2014 Braga22 Results 3: UK evidence on returns by degree class (across cohorts) - Estimated log-wage good degree class premia (GCS: 1985 and 1990) Notes: See notes to Table 4. Graduate cohort Wages observed at Wages observed at age Good degree class premium relative to lower degree class (0.023) (0.020) (0.014) (0.014) No. of Obs R2R

21 June 2014ESPE 2014 Braga23 5.Conclusions/limitations/further work (i)Some evidence that substantial increase in API of women has been associated with a fall in the college wage premium - but not correcting for selection into employment. (ii)Some evidence that degree class premium has increased over time with increase in API (iii)Need to analyse more recent HESA/DLHE/follow-up data. (iv)Need to complement large data results with ‘fine data’ analysis – eg RDD.