§ Margaret Hodge
[holding answer 2 December 2002]: The cost-benefit studies we have undertaken relate to the private and social rates of return to a degree. Private rates of return compare the costs and benefits of higher education to individuals, including their contribution towards course costs and post-tax earnings benefits. Social rates of return include these private costs and benefits, but also take into account the costs and benefits to society as a whole. Social rates of return estimate the value to the economy of investment in higher education by, broadly, expressing the net increase in national output relative to the resource cost of the higher education courses. The increase in national output is proxied by the difference in graduates' pre-tax earnings compared to those with only two or more A levels, after taking into account non-wage labour costs, which also reflect the value associated with employing a graduate.
The table provides the results of the studies undertaken in the last five or so years. They show that social rates of return have held up, with current estimates around 8–10 per cent.
Private rates of return to a first degree are higher than social rates. This is primarily because individuals contribute only partially to the costs, but also because social rates are likely to be under-estimates because they exclude social benefits that are difficult to quantify in financial terms, such as health benefits, longer life expectancy, lower infant mortality and reduced crime.727W
Private and social rates of return to a first degree Percentage Current estimates: social Dearing estimates: social Dearing estimates: private Entrants aged 18 Men and women 9–11 1— 1— Men 8–10 7–9 11–13 Women 10–12 1– 1– Entrants all ages Men and women 8–10 7–9 11–14 Men 6–8 6–8 9–11 Women 9–12 8–10 14–17 1Not estimated
1. Dearing estimates are based on General Household Survey data for 1989–1995.
2. Current estimates are based on Labour Force Survey data for 1998.
3. The lower figures in each cell assume that only 60 per cent, of the difference in graduate and A level earnings is specifically attributable to having a degree, and the higher figures assume 80 per cent.— the remaining proportion assumed to be attributable to other factors, such as innate ability.