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UK graduate labour market update: 21 April

April 2022

Returning from the Easter break, Charlie Ball provides a summary of the latest developments in the graduate labour market - including reports on degree classifications and earnings, and the increased demand for wellbeing support since the pandemic

A new report from Universities UK, authored by myself, tackles four common myths about higher education and the labour market. The myths examined are that:

  • 'Everyone goes to university nowadays'
  • 'There aren't enough graduate jobs'
  • 'Some degrees have little value to employers'
  • 'All the best graduate jobs are in London'.

The report uses available data to probe these points in depth, interrogate popular narratives about graduate employment and to demonstrate how none of these commonly-stated opinions are really correct.

The Office for National Statistics (ONS) have delivered their weekly update on the economic and social change in the UK:

  • Total online job advert volumes increased by 2% in the latest week, with increases in 18 of the 28 online job advert categories. The largest weekly increase was in 'energy, oil and gas' (9%).
  • The level of vacancies stands at 139% of the pre-pandemic baseline.
  • Potential redundancies and the numbers of employers proposing redundancies increased by 17 and 5 percentage points, respectively, in the week to 3 April 2022.
  • The level of potential redundancies now stands at 110% of the pre-pandemic baseline, but the number of employers proposing redundancies is well below pre-pandemic levels, at 77%.

In early March 2022, an estimated 21% of the workforce were using a hybrid model of working, the highest proportion reported since early October 2021.

The ONS published its latest business insights and impact on the UK economy report on 7 April:

  • The top two main concerns reported by businesses over the next month continued to be input price inflation (23%) and energy prices (20%); energy prices experienced the largest movement reported across all concerns, rising from 15% in late February 2022 to 20% in late March 2022.
  • In early March 2022, an estimated 21% of the workforce were using a hybrid model of working, the highest proportion reported since early October 2021. Conversely, those reported to be solely working from home fell to 10%, the lowest proportion reported since October 2021.
  • Approximately one in six (17%) of businesses not permanently stopped trading reported they were paying sick leave for the voluntary self-isolation of employees testing positive for coronavirus (COVID-19), while 24% reported they were not.
  • Of businesses not permanently stopped trading with 250 or more employees, 23% reported they have a climate change strategy; the top three actions being taken by businesses of all sizes to reduce their carbon emissions were switching to LED bulbs and adjusting heating and cooling systems at 29% and 24% respectively (both increased from late January 2022), and going paperless at 23% (the first time this option was included).
  • Over a quarter (28%) of businesses not permanently stopped trading with ten or more employees experienced global supply chain disruption in the last month; up from 26% in February 2022.
  • More than a quarter (26%) of businesses not permanently stopped trading reported that their turnover was lower than normal in March 2022, which is the lowest percentage reported since late October 2021.

Meanwhile, the ONS April Labour Market Update was released on 12 April. I'll do all the detailed examinations again next month - just the summary this time so it's not too long:

  • The UK employment rate was largely unchanged on the quarter at 75.5%, but still below pre-pandemic levels. The number of full-time employees increased on the quarter, however this was offset by a decrease in part-time employees. While the number of self-employed workers is still well below pre-coronavirus pandemic levels, it has increased slightly in the recent quarter.
  • Our most timely estimate of payrolled employees for March 2022 shows a small monthly increase (up 35,000 on the revised February 2022) to a record 29.6 million.
  • The unemployment rate for December 2021 to February 2022 decreased by 0.2 percentage points on the quarter to 3.8%. Those unemployed for up to 12 months decreased during the latest period to a record low. Meanwhile, those unemployed for over 12 months continued to decrease from the peak in July to September 2021.
  • The economic inactivity rate increased by 0.2 percentage points to 21.4% in December 2021 to February 2022. This increase was driven by those who are economically inactive because they are looking after family or home, retired, or long-term sick.
  • The number of job vacancies in January to March 2022 rose to a new record of 1,288,000. However, the rate of growth in vacancies continued to slow down. Over the quarter the number of vacancies increased by 50,200 with the largest increase in human health and social work.
  • Growth in average total pay (including bonuses) was 5.4% and growth in regular pay (excluding bonuses) was 4.0% in December 2021 to February 2022. In real terms (adjusted for inflation), growth in total pay was 0.4% and regular pay fell on the year at negative 1.0%; strong bonus payments over the past six months have kept recent real total pay growth positive.

The Institute of Fiscal Studies have examined the impact of degree classification and institution on graduate earnings:

  • The main headline finding is that it seems more valuable to get a 2:1 than to go to a more selective institution - this is something we at Prospects have been stating for some time as graduate training schemes become less restrictive in terms of institutions targeted, but where the 2:1 remains a very common request by employers.
  • The share of university students obtaining different degree classes varies substantially by subject studied and institution attended. Among the 2012 to 2015 cohorts of graduates, around 20% obtained first class degrees, just over half received upper second class degrees, around 20% received lower second degrees, and around 5% received lower class degrees. Subjects involving maths have a more even spread of awards across de­gree classes than other subjects. More selective universities tend to award higher class degrees.
  • There has been a long-term trend towards higher degree classes awarded in all subjects and at all levels of university selectivity, which accelerated around the 2010 graduation year. The share of people getting first class degrees more than trebled between the 1999 and 2015 graduating cohorts. Meanwhile, the share of 2.1s remained fairly flat. The biggest declines were in the share of people getting 2.2s.
  • Earnings differences between those graduating with different degree classes are large. Five years after graduation, median annual pre-tax earnings for both women and men who obtained a lower second class degree in 2013 were around £3,800 lower than for those who received an upper second class degree (or around 15% lower for women and around 13% for men). Women who obtained first class degrees earned around £2,200 (8%) more than women with upper second class degrees, and men with first class degrees earned £4,100 (14%) more than men who obtained upper second class degrees.
  • Even after controlling for other observable characteristics, earnings differences between degree classes are substantial for both women and men. Conditional on observable characteristics, the premium of gaining a first class degree over an upper second is 3.5% for women and 7.0% for men. A lower second class degree is associated with 6.9% lower earnings compared with an upper second for women and 10.9% lower earnings for men. Obtaining a lower class degree is associated with 14.7% lower earnings for women and 18.3% lower earnings for men, again compared with a 2.1.
  • Payoffs for a higher degree class vary hugely by subject. For some subjects, degree class matters a lot for earnings, while for others it does not matter at all. For men and women studying law or economics, getting a lower second class degree rather than an upper second is associated with more than 15% lower earnings (as a 2:2 will exclude the candidate from many training schemes), whereas there is no significant difference for those studying education or English. Subjects with high labour market returns tend to have high degree class premiums and subjects with low labour market returns tend to have low degree class premiums. This suggests that even students of high-return subjects typically need to get at least a 2.1 in order to access highly paid jobs (a notable exception is medicine, a high-return subject which does not usually award degree classifications).
  • Achieving at least a 2.1 has a much bigger payoff at more selective universities. Controlling for observable characteristics, both men and women who obtain a lower second class degree from the most selective universities earn 20% less on average at age 30 than those who achieve an upper second class degree, compared with around 6% for women and 8% for men who got lower second class degrees from the least selective universities.
  • There are stark gender differences in the payoff to achieving a first class degree at a very selective university. At the most selective universities (Oxford, Cambridge, Imperial College London and the London School of Economics), the average payoff to a first class degree versus a 2.1 is near zero for women, but very large at around 14% for men.
  • Despite substantial increases in the average grades of graduates during the period we study, there are no large changes in raw or conditional degree class premiums over time. Median graduate earnings five years after graduation fell by more than £5,000 between the 2002 and 2009 graduation cohorts in all degree classes for both women and men. Yet earnings gaps between degree classes have been constant throughout the period we study. This is consistent both with improvements in overall student attainment and with lower academic standards, as lower standards would likely have affected all degree classes, potentially leaving gaps in attainment and thus earnings between degree classes roughly unchanged.

The latest Jobs Outlook from the Recruitment & Employment Confederation (REC) is here:

  • In January to March 2022, employers reported worsening expectations for the UK economy. The REC's measure of business confidence in the economy improved slightly in the New Year but then fell back to net: -11 in January to March, the same level as in October to December 2021.
  • Despite this, more employers remained positive than negative about their ability to hire. The survey found that UK businesses' confidence in hiring was at net: +8 in January-March 2022. This was one percentage point lower than in the last quarter of 2021. 
  • In particular, employers' intentions to hire permanent workers have spiked over the past three months, diverging from the economic outlook, perhaps reflecting challenges in filling vacancies. Hiring intentions for permanent staff in the short term increased by nine percentage points to net: +28, quarter-on-quarter. Medium-term hiring intentions also rose by seven points to net: +26.

86% of employers believe employee expectations have changed and that they require more support for their health and wellbeing since the pandemic.

The Chartered Management Institute offer gloomy news on pay awards:

  • While half of companies are providing basic pay awards, 48% reported that no raises are being offered or that they were unaware of plans to do so. The research also showed that one in three private sector managers is concerned about the financial strength of their organisation.
  • A third of managers have seen an increase in requests from their direct reports for pay raises, above basic pay awards. A third of managers themselves are thinking about requesting a pay rise, above basic pay awards,  to meet the rising costs of living.
  • Very few organisations (one in five) are actually planning action to support staff as a direct result of the cost of living crisis (with, for example, cycle to work schemes, eye care vouchers, employee assistance programmes and free tea, coffee and cold drinks).
  • A third of private sector managers polled were concerned about the financial strength of their organisation. Meanwhile 57% of all managers say their organisation hasn't taken any actions or didn't know if there were plans to cope with rising business costs. Where respondents did know, measures such as contract negotiations, budget reductions and streamlining expenditure were cited.

Employers generally feel employees need more wellbeing support since the pandemic, say Towergate Health and Protection.

  • Of the four pillars of health and wellbeing - mental, physical, social, and financial health - mental health was placed as the top issue for concern from employers and also the area where employees would most like more support, with 40% of employers saying they are more concerned about the mental health of staff since the pandemic.
  • Employers are also now more concerned about all areas of health and wellbeing: 22% are more concerned about the physical health of employees, with difficulty getting to see GPs, pressures on the NHS, and delays in being diagnosed and treated for serious conditions. 17% are more concerned for the financial health of employees since the pandemic. 13% are more concerned about social health including, for instance, increased isolation.
  • Over half (53%) of employers say their employees would like more mental health support since the pandemic and 41% percent feel that social support is needed more than previously. Over a third (36%) believe their staff now want more support for their financial health, and another third (36%) also think employees want more help with their physical health since the pandemic.
  • Overall, this means that 86% of employers believe employee expectations have changed and that they require more support for their health and wellbeing since the pandemic.
  • The impact of the pandemic on mental health appears to have been felt more by employees in larger companies. Nearly half (49%) of employers in companies with 250+ staff said they are more concerned about the mental health of staff since the pandemic. This compares to 37% of SMEs.
  • Nearly three quarters (74%) of large corporates said employees would like more mental health support than previously, compared to almost half (46%) of SMEs.

The Institute of Student Employers' (ISE) Nicola Thomas summarises their recent Development Survey here on Luminate:

  • One in three employers reported that they had changed their skill requirements as a result of the pandemic. In particular, employers were more focused on hiring graduates based on 'soft' skills this year with resilience, adaptability, self-motivation, and confidence being reported as more important by employers in a post-pandemic workplace.
  • Employers rated skills such as business-appropriate communication as being weaker among early-career hires in 2022 - unsurprising given the lack of opportunity for student work experience during the pandemic.
  • However, employers typically expected less from their graduate hires this year. This speaks to a sector-wide awareness of the limited opportunities graduates have had for skills development during the pandemic. It's also an encouraging sign that employers have a realistic view of what abilities they can expect from their recent early-career hires in 2022.
  • 87% of employers had hired apprentices in 2022. On average organisations were spending 47% of the apprenticeship levy - this is the highest ever average spend reported by the ISE. This indicates that hiring apprentices is a strong new trend for 2022. The largest uses of the apprenticeship levy was in the Energy, Engineering & Industry sector, using an average of 70% of the levy. Meanwhile 17% of organisations also deliver their own apprenticeship programme as an employer provider. Most organisations did not include graduates in their apprenticeship schemes, although one exception was the Finance & Professional Services sector where 40% of their graduates were on an apprenticeship programme.

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