In writing this it feels like comparing Big Brother and Newsnight and finding that they are really the same thing - both Jeremy Paxman (deliberately) and Jade Goody (accidentally) having the same task of generating more heat than light. I am by no means convinced that anyone graduating from university has much to offer the commercial world. The commercial world knows this and responds accordingly.
There is an analogy here with religion, an idea held as a universal truth without much evidence to substantiate it.
The analogy with religion becomes more apt after considering Blaise Pascal’s thoughts on religion. Pascal was a mathematician who spent some time considering betting and came up with a reason to believe in God knows as Pascal’s Wager
He argued that if God didn’t exist and whether you believed that or nor there was no difference in outcome.
If, on the other hand, God did exist but you denied this existence you would spend eternity in hell. Whereas, by holding that belief you would go to paradise. So the risk far outweighed any reward and a rational person would, therefore, believe in God.
Similarly, conventional wisdom has it that the risk of paying £9,000 in tuition fees (at 2007 prices) plus the loss of 3 years paid employment is counter-balanced by the extra financial rewards that a degree brings. That is, graduates are paid substantially more than non-graduates.
Naturally, figures are quoted to back this argument up. Numbers matter in our society. Society regards itself as being rational, mathematics is the language of logic so numbers demonstrate rationality. However, just as Pascal’s Wager is over simplistic, so are these numbers and the rationale they are meant to underpin.
A belief in God is not sufficient since that belief needs to be demonstrated by the observance of dictats from God’s ‘mouthpieces’; priests, vicars, rabbis, imams, etc. This may, and probably will, cause the individual to incur greater risk than at first seems to be the case. They may engage in wars on behalf of God and will most certainly need to deny themselves pleasures on God’s behalf (as translated by the ‘mouthpieces’), In fact Pascal’s Wager looks to be not such a sure thing after all. So much for philosophers!
It is the same with numbers. By simply taking an average wage for graduates and comparing it with the average wage for non-graduates the assumption is that there are as many graduates and non-graduates earning below their respective averages as above them. That is both graduate and non-graduates have normally distributed wages.
A more reasonable approach would be to use median wages. These are wages where the numbers above and below are the same and so represent a more accurate picture of what might be achieved.
Data presented at the Research Methods Festival held at St, Catherine’s College Oxford in 2006 is very illuminating. One presentation by Alissa Goodman of the Institute of Fiscal Studies showed that over a working lifetime the median wages of a male graduate would exceed the median wages of a male non-graduate by £405,500 (for females it was £383,000 - such is life!). This may sound a lot but when subjected to analysis it is less impressive.
What is being presented is that, for a male, an investment of £40,500 (£9,000 tuition fees and a foregone post-tax income of £31,500 - 3 years at median non-graduate wage) is worth the total return of £405,000 - £283,850 post-tax. In order to assess this investment opportunity it is necessary to use a concept called discounted cashflow. That is the total post-tax return of £283,500 is made up of a number annual incomes (cashflow) over a 45 year period - 21 to 65 (it is very unlikely that the state-retirement age will fall with the twin pressures of an ageing population and a low birth-rate). To show the calculation I have posted an Excel spreadsheet .
This calculation shows that the value of an investment producing such cashflow is £13,172. Much less than the cost of a university education of £40,600. In fact, it’s only worthwhile if as a graduate you can get a job in the highest paying 10% of jobs. That is, for 90% of graduates a university education is not a financially worthwhile investment.
Furthermore. according to a survey by the accountants Price, Waterhouse, Cooper (PWC) only a third of graduates get a ‘graduate’ job when leaving university. However, 20% do spend a year travelling and may get such a job later. Even so, that would be only just over half of graduates getting such jobs.
The consequence of this is that, if only 33% to 53% of under-graduates end up in graduate jobs and only 10% of graduate jobs produce an income (cashflow) worthy of the investment of a university course; then only between 3% and 5% of university courses are a worthwhile investment. As with other investments, there should a wealth warning given out with university applications.
This doesn’t really surprise me as it fits in well with my own experience. I remember well when at ‘A’-level in the late 1960s my applied maths teacher (we had both pure and applied maths teachers) advised the class of 5 (I am shocked at the size of ‘A’-level classes my son has had) that if we did go to university we would never make up the financial loss of those 3 years. Of course, we didn’t believe him, in any event in those days there were no tuition fees and there were maintenance grants (at least for me). This couldn’t be true. Oh yes it could.
When I graduated with a BSc in electronic and electrical engineering I found the wages I was being offered around 40% less than those of my cousin who worked in a British Leyland plant in Coventry. Furthermore, he had been earning that since he was 16 and I was now 21.
Of course, it can be argued that in the long-term he wasn’t so well off as British Leyland ultimately collapsed. Well, the main employer for electrical and electronic engineers appeared to be GEC and look where they have gone!
Fortunately, my bacon was saved by the oil price hike of the early 1970s and the Common Market. As Britain had joined the Common Market (the EU now) in 1972 it meant I could work in other European countries. I got a job in France working for an oil services company where the only qualifications required were that I spoke English (the pre-dominance of the USA in business has been my life-saver throughout my life) and had ‘A’-level physics. Note the degree never mattered.
This makes sense since I had left university with the distinct impression that my knowledge really hadn’t moved on much from my ‘A’-level days. As for the myth that university life somehow equipped me with analytical skills - complete rubbish. As in the preceding 10 years (from my 11-plus days) all I was taught was to pass exams.
As any economist will tell you, the wage an individual earns is a result of their productivity measured in value-added per hour. The only value a graduate can add is either their intrinsic personal ability to learn new things and adapt, which university doesn’t provide, or knowledge that university does provide. This means that, at least in my case, the value add of most degrees is very small. There being little or no increase in knowledge between ‘A’-level and a degree and, therefore, little increase in earning power.
This is not the fault of universities. Universities exist to do research. In order to do that they need money. Under-graduates are a source of revenue. In my day the government paid everyone’s tuition fees and even provided maintenance grants. This meant that the taxpayer funded universities through research grants and tuition fees. University lecturers, in general, are not interested in teaching they want to do research. They teach because of the need for revenue. Although teaching and lecturing are not the same. To lecture is easy, just read out the script and answer any questions with disdain. To teach means to connect with the individual. Consequently, under-graduates (generally) teach themselves from material presented to them. Some of my worst teachers were at university.
By the introduction of top-up fees and the introduction of student loans, the government has introduced a voluntary tax to fund tertiary education. It has a high take-up on this tax due to aspirational parents, most of whom never went to university, seeing a degree as being a sort of magic wand. The pill is made easier to swallow as the old polytechnics, which have lower entry qualifications, have now been branded as ‘universities’ as well thus making their funding easier too. Little Jimmy or Jane who, in the past, would not have made university (lucky them) are packed off to the University of New Town (formerly New Town Polytechnic) by parents proud that their offspring have achieved what they did not. Although, I have always suspected that in the teaching of productive subjects (for example, engineering) Polytechnics were better than universities as they were not so research-oriented.
Furthermore, economics also tells us that supply and demand are stabilised via price. If the supply of graduates increases whereas the demand for them remains static or even falls then the price will fall (the static case) or even tumble.
Of course, some employers will only consider graduates for employment. Sometimes this is because it can reasonably be expected that university has added value, medicine being a prime example. However, for a great many (if not most) it is simply lazy hiring practices. The PWC survey mentioned earlier found that only 5% of graduate jobs were actually part of a graduate training programme. In other words, 95% simply specified ‘graduate’ as a means of sorting potential hires. They didn’t require graduates it just made life easier.
This also probably accounts for the fact that graduate wages are not what might have been hoped from the investment - they end working for poorly managed firms.
Anyone hoping for a job in the public sector will not progress very far without a degree. However, as the public sector faces no competition for its services the only task facing management is how to share out taxpayers’ money. Classification, therefore, matters and a degree is a means of classification. Of course, not all degrees are equal and where the degree was obtained will become part of this process. The fact that the utilities were privatised as a result of Treasury failure to re-invest in the old water, gas and electricity boards. That the Home Office can’t deport foreign criminals and that the MOD finds it impossible to deliver the correct equipment to the military all serve to demonstrate just how little value is added by most graduates.
The only reason a firm should want to hire graduates is, again, explained by economic theory. A firm is capital and labour brought together under the umbrella of knowledge. That knowledge being managerial knowledge. Labour may have knowledge of how to do something but it is managerial knowledge that enables that knowledge to produce goods and services the market values. A graduate making a piece of furniture can only be worth more than a non-graduate if the graduate makes a table that the market values more than the non-graduate. In practice, the value is added not by the maker but by the manager. Universities may have something academic to say about management but, by definition, that is theoretical.
The best, practical, example of this is the fact that both the US and the UK produce more graduates than Germany. Yet both the US and the UK have massive balance of trade deficits. That is the average American and Briton prefers to buy foreign goods and services rather than from native firms despite the fact those firms have access to large numbers of graduates.
Germany, on the other hand, has few graduates but a large vocational (can-do) workforce producing goods and services people want and therefore value.
Closer to home, Birmingham, despite having a number of grammar schools, still saw the loss of both British Leyland and Lucas. My cousins’ son got a first in Physics from Oxford. His job opportunities were either British Nuclear Fuels or the City. He chose the City and later Microsoft and has done well. But that is down to dubious practices by both the City (investment funds, endowment policies and pension plans that have failed) and Microsoft than to do with providing superior goods and services.
This brings us back to Pascal’s Wager. He argued that a belief in God (ignore the question of which one) outweighed any risks because the risk of disbelief (eternal damnation) outweighed the benefit (such as it is) of atheism. So it is with a degree. It is not the degree that matters but how old the graduate is. A thirty year old getting a degree and seeking a new employer and fresh employment will find it much harder than a twenty-one year old. So it is, effectively, a once in a lifetime chance to turn graduation into money. A once in a lifetime chance to avoid the pits of damnation. What parent is going to deny their child such an ‘opportunity’ no matter how unlikely it is to succeed. Parents that have a son with the talent to kick a football who is spotted by a professional football club are unlikely to deny their son that opportunity in favour of academic study or just messing around.- both are likely to benefit their child more than being spotted - because, it might, just might, be a path to wealth and fame.
