Duncan Brown: Should employers pay for skills and qualifications?

When both my girls were in full-on exam-stress mode recently, one to get into university, the other to stay there, I lay low at home.  But underneath the headlines of mounting student debt and graduates being forced into low-skilled jobs, what’s the evidence that all the effort of getting a degree pays off?


Pretty overwhelming, actually. After falling by more than 20% in the two years after the financial crash, job opportunities for the UK’s 350,000 graduating students are forecast to increase by 9% this year, according to High Fliers Research, published in January 2014.

Financial services numbers are up by a huge 42%. A record 11,819 paid internships and work placements are also being offered by employers.

And data on both sides of the Atlantic suggests that the earnings premium that graduates enjoy over their working lives more than makes up for the struggles that many students face today.

Analysis by the Economic Policy Institute, published in May 2014, showed that American graduates last year made almost double (98% more per hour) the earnings of non-graduates, compared to a premium of only 64% in the 1980s.

According to research undertaken by Professor Ian Walker for the UK’s Department of Business Innovation and Skills in August 2013, there are substantial and previously under-estimated effects of a degree on the net present value of the lifecycle of incomes, of ‘28% for men (approximately £168,000) and 53% for women (approximately £252,000) on average’.

Even for lower-skilled jobs, the evidence is also clear that improving the knowledge and skills of staff pays off, both for employee and employer. Shaw et al’s review of The Success and Survival of Skills-based Pay Plans, which was published in January 2005, found such plans are associated with higher work flexibility and productivity, though realising these benefits depends, crucially, on the design and implementation processes adopted by HR and reward professionals.

Pay design and processes

But you wonder about some of those pay designs and processes in the UK at the moment. The average starting salary for graduates in professional employment dropped by 11%, from £24,293 to £21,701 in real terms between 2007 and 2012, according to the Complete University Guide.

Only two subject areas – materials technology, and librarianship and information management – showed an increase, of 13% and 3% respectively. Even salaries for in-demand general engineering graduates fell by 2%. And in medicine and dentistry (always high graduate starting salary rankings) reductions of 15% and 9%, respectively, were evident.

Ken Mulkearn, head of pay and income at Income Data Services (IDS), gave an excellent summation of the UK labour market at a reward strategy masterclass I ran in June with the Universities and Colleges Employers Association (UCEA).

He questioned whether and when the Office of Budget Responsibility’s forecasts for higher wage awards over the next two years will actually be realised, not just in terms of total awards levels, but also individual pay progression.

Government departments and agencies are all required to remove service-based incremental progression this year. While one I worked with is now in the process of replacing service with skill and competency-based stepped progression, most seem not to be specifying if and how individual pay progression will be delivered in future years.

Mulkearn showed that, although the number of pay awards between 2% and 3% is increasing, the median increase on IDS’s database is still 2.5%, the same as in 2013 and 2012, with very small merit or skills-progression-based budgets contained within that. Graduate salaries are flat in two-thirds of employers.

As The Guardian’s economics editor Larry Elliot put it recently: For our future economic and social health ’Britain needs a pay rise’.