Shrinking degree premium
Dawn · Saeed Ahmed ·
To change how our society views skills, we need to bring them into the formal education system.
UNIVERSITIES were originally established as centres of higher learning, places to pursue knowledge, not wages. The Abbasid-era Bayt al-Hikmah (House of Wisdom) in Baghdad brought together scholars who translated Greek, Persian, Indian, and Syriac works on philosophy, medicine, and astronomy into Arabic, and courts in Cordoba and Cairo built great libraries of their own to attract innovative thinkers. In England, the University of Cambridge has, for over 800 years, been at the centre of education, innovation, and intellectual debate, shaping some of the greatest minds in history, such as Isaac Newton, Charles Darwin, Alan Turing, Bertrand Russell, John Maynard Keynes, and Stephen Hawking. Across the Atlantic, Harvard has since at least the 19th century championed reason, research, and intellectual freedom. By the mid-20th century, its mission had widened to academic excellence, research dominance and democratic access through merit-based admission, and the university degree had become the passport to a profession.
Today’s teenagers and their parents see it differently. They pursue a degree for its economic value, and employers treat it as a signal of advanced, scarce skills. Both assumptions were long taken for granted, but both are now in doubt. Claudia Goldin and Lawrence Katz, in their work on the ‘race between education and technology’, showed that more education does not automatically meet more demand for skills. The information revolution sustained a four-decade boom in knowledge jobs, so that the graduate premium rose even as the number of graduates grew.
That long phase now appears to be ending. Recent research by José Azar, Mireia Giné, and Javier Sanz-Espín finds that the US wage premium for college graduates fell steadily between 2022 and 2026, returning to its mid-1990s level, a total drop of about eight per cent. In the UK, the FT’s John Burn-Murdoch reports a similar pattern, with a sharp fall even among STEM graduates and in London’s knowledge economy, despite a slowdown in the share of young people going to university.