In the UK, people of all ethnic minority groups are now more likely to go to college than white Britons. But does university education pay off in terms of their future income?
I have considered this question in a recent report, co-written with Jack Britton at the Institute for Fiscal Studies and Lorraine Dearden at UCL. We have found that the financial benefits of college are positive on average for all ethnic groups, even after accounting for taxes and student loans. The earnings are highest for South Asian students, average for white students, and especially lowest for black students.
The benefits are especially significant for Pakistani students, with an estimated increase in average earnings of more than a third by the age of 30. Adding up the expected lifecycle earnings and factoring in taxes and student loans, we found that earning a degree is worth around £ 200,000 for Pakistani students. – approximately double the average return for all the students we calculated in previous work.
It is not because Pakistani graduates have particularly high incomes. In fact, the opposite is true: Pakistani graduates have the lowest incomes of any ethnic group, with typical earnings at age 30 of £ 23,000 for men and £ 19,000 for women.
Instead, the reason is that – comparing similar people who went and didn’t go to college – Pakistani graduates would have earned a lot less if they hadn’t been to college. Typical earnings at 30 for Pakistani men and women who have not gone to college are just £ 13,000 for men and £ 11,000 for women.
An important factor explaining the large gains of Pakistani graduates (compared to not attending university) appears to be that Pakistani students are more likely than white British students to choose subjects with good job prospects in the classroom. university, such as business, law or pharmacology. They are also less likely to choose degrees with low or negative financial returns, such as creative arts.
This reflects a more general pattern. All Asian groups are more likely to study “high-performing” university subjects, which appears to be a major factor behind the comparatively large gains for these groups.
These findings appear to contradict a claim in the recent government report race commission report. According to the report, the low incomes of graduates from many ethnic minority groups are explained by the fact that “students from ethnic minorities, and especially black students, from lower social backgrounds are not well advised on which courses to take. at University “.
Our results suggest that the opposite is true for South Asian students, as they tend to study more lucrative subjects than white students. We also find no evidence that black students choose low-performing subjects than white students. That’s not to say that bad professional advice isn’t a problem, but it doesn’t seem to disproportionately affect ethnic minorities.
The government report also suggests that ethnic minorities have low earnings from higher education because they attend less selective universities. It is true that students from ethnic minorities – especially black students – are more likely to attend discounted universities, and graduates of these institutions earn less than other graduates.
Most importantly, this does not mean that these universities offer low returns. Many graduates of these institutions would have had much lower incomes if they had not attended university at all. Overall, we found no evidence that the choices of institutions of ethnic minorities reduce their earnings while attending university.
Differences according to socio-economic background
We also examined differences in earnings from obtaining a diploma by socio-economic background. We have found that those who have gone to private schools – especially men – benefit much more from college than graduates from public schools. Among state graduates, returns vary relatively little by socio-economic background, but the poorest families benefit the most.
Again, it’s not because graduates from poor families earn a lot: typical earnings at age 30 for this group are relatively low at £ 25,000 for men and £ 21,000 for women. Rather, it’s because they probably would have earned a lot less if they hadn’t been to college. For the 30-year-old state graduates from those families who did not go to college, typical earnings are just £ 20,000 for men and £ 11,000 for women.
What explains the differences between the groups?
All of the above analysis compares students who did or did not attend university within each ethnic or socio-economic group. Looking at the groups, we found that some, but not all, of the differences in income can be explained by differences in educational attainment and other contextual characteristics such as special educational needs or English as an additional language. Unexplained pay gaps are smaller among graduates than among non-graduates, suggesting that the university can to some extent level the playing field between different groups.
Strikingly, even among graduates, white British men earn on average significantly more than men of all non-white ethnicities after controlling for all observable background characteristics. Likewise, among state graduates, those from the richest families earn more than those from the poorest families, even after controlling for all factors.
These unexplained differences may reflect the effects of discrimination in hiring, promotion and pay. But they can also signal other differences between groups, such as differences in geographic mobility or access to professional networks.
The Racial Commission report rightly points out that a large part of racial disparities can be explained by economic disparities, leading to gaps in academic achievement. But our research shows that there are also unexplained differences between ethnic groups, as well as differences between socio-economic groups that cannot be explained by differences in educational attainment.
While some of the race commission’s particular findings will ultimately not stand up to scrutiny, its distinction between explained and unexplained disparities is useful in identifying the sources of ethnic income differences. Uncovering the causes of unexplained disparities will be an important task for future research.