Class and ethnicity seem to matter, even after controlling for academic ability
WHICH university graduates will go on to the earn the most money? Labour-market observers should not be surprised to find that both the subjects people study and the universities they attend are strong predictors of career earnings. A new report from the Institute for Fiscal Studies (IFS), a think-tank, provides further clarity on this question by matching tax data with the academic records of university graduates in England. It presents two important takeaways.
The first is that not all of the differences in graduates’ earnings can be ascribed to their alma maters and career choices. Doctors, for instance, tend to earn high salaries, but this is at least in part because they tend to be bright and come from rich households. The IFS study notes that although doctors earn 70% more than the average degree-holder does five years after graduation, this premium falls to just 30% once you control for traits such as their pre-university test scores and socioeconomic backgrounds. This suggests that doctors would have been successful had they chosen to study other fields instead. In contrast, philosophy graduates, whose salaries tend to be in line with those of their peers, actually earn around 10% less after taking into account the aforementioned controls.
The second and more striking finding is that individual variables such as socioeconomic class, region and ethnicity matter, even after controlling for academic-related variables. Men of Bangladeshi descent, for instance, earn 9% less than their white peers, even after controlling for traits like socioeconomic status, subject choice, academic ability and what university they attended. Graduates from northern England, and those from households in poorer areas, are similarly disadvantaged.
One reason why traits like ethnicity might be a statistically significant predictor of earnings is that the authors did not adequately capture a person’s true socioeconomic status. Ideally, the study would have taken into account how rich graduates’ parents were when they were growing up, but such data were not available. The report instead relies on cruder proxies for class, such as what share of kids in a person’s neighbourhood later went on to university.
A less benign reason, however, is that academic performance and subject choice are simply not enough to explain why some people earn more than others. Factors like racial discrimination and family connections probably still play a part.