A GOVERNMENT drive to increase dramatically the number of university students was called into question last night as it was revealed that the earning potential of graduates is falling.

The narrowing of the difference in earnings between those with and without a degree emerged as government figures showed that a third of those who graduated in 2003 are still unemployed a year later. Of those in work, nearly a third are in secretarial or sales jobs.

The results, together with the latest prediction that average graduate debt will rise to about £26,000 by 2007, will challenge the Government’s target that up to 50 per cent of school-leavers should attend university by 2010.

Peter Elias, of the Institute of Employment Research at Warwick University, said: “With more graduates entering the labour market, employers simply don’t have to pay the same premium they used to in the past.”

In June, Professor Elias and Kate Purcell, of the University of the West of England, published Seven Years On: Graduates in the changing labour market, which showed that graduates were still more likely to get higher-paid jobs than non-graduates.

The seven-year survey of 4,500 students from 38 universities was seized upon by the Government as proof that there was no graduate glut and, in the words of Alan Johnson, the Higher Education Minister, was “another nail in the coffin of the doom merchants who insist that more graduates means worse”.

However, since then Professor Elias has received 9,000 responses and revised his survey to compare the distribution of earnings of graduates leaving university in 1995 and 1999. He found that while earnings in the first year did not change dramatically and most did not enter the career path for four or five years, in the longer term there was evidence of a fall in the value of a degree. While average earnings increased by 25 per cent nationally between 1999 and 2003, graduates who left university in 1999 found their earnings only going up by between 20 and 22 per cent.

“They are still high-earners, on average earning 25-30 per cent more than if they hadn’t got a degree, but clearly the graduate earnings premium is in decline somewhat,” said Professor Elias, adding that if earnings continued to drop at the same level of 1 per cent per year relative to average earnings, the premium could disappear in 20 to 30 years.

“I don’t think that will happen for a moment,” he said, “but it is bound to plateau and quite where and when, I wouldn’t like to guess”.

Nevertheless, the professor insisted that his research would not spell bad news for the Government’s 50 per cent target of school leavers attending university, but that some “labour market repercussions” were inevitable.

“There is still a strong demand for graduates and with only 10 per cent or so in non-graduate jobs after five years, there is a significant premium, even if it is going down,” he said.

Last year 325,400 graduates left higher education compared with 308,400 in 2002 and 303,800 in 2001. However, while the overall numbers of graduates had risen the numbers finding permanent work had dropped from 164,000 in 2001 to 159,100 last year.

Yesterday a spokesman for the Department for Education and Skills said that it was “still a good time to be a graduate” and that in the longer term most found graduate-related jobs. “It would be reckless and irresponsible to deny UK firms the extra graduates they need to compete in the global economy,” he said. “Of the 13.5 million total jobs expected to be filled by 2012, 50 per cent are in occupations most likely to demand graduates.”

In June, however, the job recruitment agency forum3.co.uk tested the basic literacy and numeracy skills of 1,000 graduates and found that more than half were unable to spell simple words correctly, including, fulfil, separate and receive.

Paul Canal, managing director of forum3.co.uk, said: “Where once employers stumbled over themselves to employ graduates, they are now taking a much more pragmatic approach and assessing applicants using their own academic tests, as it appears that many graduates are leaving college without a distinct differentiation from non-graduates.”

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