Graduate pay premium is two thirds lower for young women than previously thought
Using data from Next Steps, researchers have been able to show that the pay premium for female graduates has been historically overestimated.
Previous studies comparing graduate and non-graduate earnings have relied on administrative tax records. These records include information about how much people have earned in total but not how many hours they have worked. But Next Steps survey data does include this information. By using Next Steps data, the researchers at UCL found that the graduate pay premium is the result of female graduates working longer hours, not higher hourly wages.
The research challenges the conventional wisdom that early career earning potential is boosted by obtaining a university degree, particularly for women.
What the researchers found
When studying annual wages alone, female graduates earned on average 26.9% more than non-graduate women in their mid-20s, which reduced to a 13% difference once background characteristics were taken into account. These estimates were similar to others obtained using administrative tax data.
However, when the number of hours worked was considered, the difference in earnings between female graduates and non-graduatesw dropped to 4.8%.
While the squeezing of the graduate premium can be partially explained by women without a degree being more likely to work part time, annual wages still overestimated the premium when the sample studied only full-time workers.
The researchers explain that this miscalculation occurs because graduate women work, on average, 2.3 hours more per week than non-graduate women.
This small difference in weekly working hours is enough to reduce the magnitude of the graduate premium by two thirds at this early career stage.
Analysis of earnings has typically been based on HMRC tax records, which calculate earnings annually and do not record the number of hours worked. The researchers argue that using tax records alone distorts the size of the graduate premium, particularly for women.
Why this research matters
Co-author Dr Nikki Shure (UCL Social Research Institute) said: “Our study found a crucial blind spot in the way the ‘graduate pay premium’ is calculated. Without accounting for the number of hours worked, the economic returns to female graduates appear much larger than they actually are and this creates a distorted picture of the labour market.
“Hourly earnings are a great measure of economic productivity, and they should be recorded in official statistics, whether by employees or employers.”
Co-author Dr Anna Adamecz (UCL Social Research Institute) said: “Our findings suggest that there is a limit on how much higher education can improve national productivity, particularly among graduates in the early stages of their careers.
“But we couldn’t have discovered this without the additional information provided by the Next Steps cohort study. Next Steps is the only nationally representative cohort study of millennials in England. This is a key generation for understanding labour market dynamics as they came of age in the aftermath of the financial crisis and have experienced profound generational shifts as compared to gen X and gen Z. It is crucial that policymakers have accurate and reliable information when shaping fair and effective education policy.”
Read the full research report
The labour market returns to graduation: reconciling administrative and survey data estimates by Anna Adamecz, Matt Dickson and Nikki Shure was published on the Economics of Education Review website in August 2025.
