Could rises in tuition fees have unintended consequences for the labour market? Here’s a theory. Let’s suppose that the graduate premium exists not because universities create more productive workers, but simply because more the sort of people who go to university are more attractive to employers anyway.
If this is the case, then the sort of firms that traditionally hire graduate trainees might want instead to hire 18-year-olds who have been offered university places but who don‘t want to get into debt. Rather than use university degrees as signals of ability, firms and applicants would use offers instead.
This would benefit both parties. Firms would get bright young trainees. And successful applicants would get a good career without getting into debt.
So, why - apart from the usual institutional inertia - might we not see firms setting up post-A level trainee schemes instead of (or alongside) graduate training schemes? There are three possibilities:
1. My premise is wrong. Universities do actually inculcate human capital, so an Oxford graduate is much more than just three years older than a person who’s been offered a place at Oxford. This, though, runs into two difficulties. One is that it’s common for law and accountancy firms to hire people with degrees in all sorts of subjects; how does a classics degree create human capital relevant to accountancy? The other is that US evidence suggests that people who have been offered places at “top” universities but in fact go to lesser institutions actually earn the same as those who take up their places. This suggests that “top” universities don’t impart skills.
2. 18-year-olds are considered too immature to join “respectable” law firms or investment banks. On this view, universities are merely child-minding institutions.
3. Getting into debt is an attractive signal to an employer. It betokens confidence about one’s future income prospects, which might be correlated with actual ability. Or it might be a sign that one comes from a wealthy family and so will “fit in“. Or - less plausibly - perhaps there are some employers who value the intellectual curiosity which graduates are more likely to have than those who shun universities. Whatever, firms would rather hire the indebted graduate than the bright but debt-averse 18-year-old.
I fear that there might be more truth in (3) than we’d like.