Myths about the graduate labour market – Number 2: Everyone goes to university nowadays

Each week* I will be tackling a common myth about university, graduates and the labour market and showing the data and research surrounding them so you can judge how valid those statements are. I started with the big one – that there are too many people getting degrees.

Next up, a related myth – that ‘everyone gets a degree nowadays’.

*may not be, strictly speaking, one post every week.

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Myths about the graduate labour market – Number 1: We have too many graduates

It’s been some time since I last tackled the most common myths currently circulating about graduates and the graduate labour market. The current state of the graduate labour market is a little murky in the post-EU-referendum economy, but the broad trends and themes are still current and so we will touch on those questions as we go.

Over the next few days I will examine some of the key misconceptions that circulate  in media and civil discussion and occasionally even in universities and policy, about graduates and the graduate labour market. In response, I will try to demonstrate a balanced picture of what is taking place.

The 2016 graduate labour market and Brexit.

A lot of people are writing about their personal journeys towards their referendum vote tomorrow, but I’m going to assume that anyone who pays attention to anything I say does so largely to hear what I have to say about the graduate labour market.

Over the long term neither vote is likely to change the economic or social makeup of the country very greatly – there are far greater forces in play than the EU. The UK is a relatively rich nation and is likely to remain so. As a consequence it is also likely to continue to require significant immigration to fill labour needs and thus for net migration to the UK to continue regardless of the result. It does seem likely that were we to leave the EU, the nation is more likely than not to end up less wealthy than it would were we to remain but we wouldn’t know either way and we’d still be an affluent Western nation and so that question is more theoretical than practical. There are lots of things we might do that could affect our long-term prosperity that we don’t put to a referendum.

It is not an easy matter to work out exactly what Brexit would entail for the labour market over the long term. I am not going to try. We would need detail about trade deals and future economics that simply does not exist.

The short term is a different matter. Almost all those with an informed view agree that the economy would experience a shock and most likely enter a recession if we vote to Leave. Much of this is due to uncertainty about future business conditions, that great foe of business planning.

Indeed, as anyone who is involved in the labour market will tell you, businesses seemed to become much less certain about the UK’s post-referendum future earlier this year (probably around February/March for most), and as a consequence recruitment, particularly into new positions, appears to have slowed down considerably since then. Again, it’s not clear exactly what will happen if we vote to Leave tomorrow, but this Pathmotion survey, although relatively small in size, found that half the employers surveyed would reduce recruitment and the other half would leave it the same. Nobody surveyed expects that leaving the EU would allow or require them to hire more people. So this reinforces the idea that there would be a short term, negative impact on graduate recruitment. It may well be that simply having had the referendum in the first place might reduce the number of opportunities for new graduates this summer, simply because of the inhibiting effect that uncertainty has had on the labour market, but if Remain wins tomorrow, pent-up demand may well be released and graduates may not experience much overall difference with last year once the dust settles.

If we vote Leave? As is always the case, on any kind of economic shock, the first people to be affected are new entrants to the labour market. In the case of new graduates, a shock sufficient to cause a recession – as most authorities expect – would be expected to cause an increase in early graduate unemployment after six months, from the present level of 6.3% to around 8% or higher (it’s usually higher in a recession). Approximately 350,000 first degree graduates are expected to complete this summer, and a 1.7% rise in the rate of unemployment  equates to just under 6,000 fewer of them getting work.

Next we try to gauge the effect on the employment rate in professional occupations. Ordinarily, economic shocks hit lower skilled workers first, but Brexit is expected to hit sectors such as financial services and HE particularly strongly – indeed some financial services firms, such as JP Morgan and Goldman Sachs have stated that leaving the EU will probably affect where jobs go in their companies in the future and that it is likely that fewer will be in the UK.

So we’ll assume that we have an ‘average’ recession for one year, and that the proportion of graduates in well-paid professional roles at the start of their career will fall from approximately 68% of the cohort as it is now to 63% – about what we saw in the last recession. Around 245,000 graduates will enter the workforce this year, so a decrease in the professional employment rate of 5 percentage points comes to 12,250 fewer graduates in professional level jobs. This is a price to be paid by the individuals whose careers could be set back and by society, by having underemployed, able young people contributing less in tax to the Exchequer than they otherwise might.

I’m not saying if we vote to Leave the EU, exactly the scenario outlined will take place. Like all predictions about the future, my prediction is wrong and all we will find out later is quite how wrong I was. I don’t think it’s significantly wrong and if anything underestimates potential impacts. The figures outlined – 6,000 fewer graduates in work, 12,000 + fewer graduates in professional employment – is about what you’d expect if we suddenly fell into recession from the position we’re in now. It gives you some idea of the immediate effect that thousands of this year’s young university leavers might experience in the event of a Leave vote and likely subsequent recession.

We will have recessions in the future. We’ll probably have one within the next decade. None of them will be much fun. I’d rather we didn’t have an avoidable one right now.

I’m going to vote Remain. This is less about the labour market and more because of my long-held and deep-rooted belief in national and international co-operation. The campaign from both sides of the argument has rarely been edifying, and has too often showcased much that is bad about public discourse, political thinking and the UK media. But the Leave campaign has been especially grim and they have failed to give anything resembling a clear view of exactly how the UK will leave the EU, what will happen afterwards, or how they expect the country to look when the process is complete.

Ultimately, I feel the nation is strengthened, not weakened, by a close bond with our neighbours. The EU is a deeply imperfect set of institutions with many serious faults, but I do not see that in an increasingly interconnected world, isolating the nation from our existing bonds and agreements strengthens us. We’re all part of an international community, facing the same challenges on issues climate and population, and I feel we’ll achieve more as an enthusiastic agent to improve the EU than by withdrawing from a group we’ll nevertheless still have to work with, but with less say on the rules we will have to abide by. That’s why I will vote to Remain in the EU.

Seven reasons why employers may be unable to recruit

I’ve been reading the recent paper from Warwick’s Institute of Employment Research and IFF on skills mismatches in the UK economy.

It’s a long paper, and quite technical, and much of it deals with the vexed question of how to identify skills mismatches and shortages in the first place, which is something of great interest to me, but a trifle niche. But there are some important findings in here for policy, practise and employers, and I’m going to look at it from the perspective of graduate recruitment.

The report combines analysis of data from surveys such as the 2013 Employer Skills Survey (the 2015 survey has subsequently been published) and interviews and case studies of employers who are experiencing skills mismatches and shortages to explore why they’re happening and what the response is, and it’s this part that is particularly interesting.

The basics of the report are that the authors believe that there are not many absolute skills shortages – where there are just not enough people with certain skills and training to fill demand – in the economy and where they are tend to be in management, in graduate roles in IT, in engineering and in business services (the latter in roles such as procurement and marketing/PR), and in skilled trades. It also, interestingly, finds that there’s little evidence that we have too many graduates either, but does counsel that

graduates who were mismatched (over-qualified and over-skilled) in their first job had a higher likelihood of still being mismatched to their job five years later

which has implications for the way we advise graduates on their early stages of their career.

There is also a mixed view of the apprenticeship agenda – there is a clear potential role for apprenticeships in meeting certain skills shortages, but some employers still need convincing.

It is at an intermediate level where skills supply is not meeting demand. Apprenticeships are well placed to meet this demand but there is prima facie evidence that employers are unwilling to make what often amounts to a substantial investment in this type of training because of concerns about it meeting their specific, unique skill needs and being able to retain the services of the apprentices once they have completed their training…. Accordingly there needs to be some means of reducing the risk that employers face when investing in programmes such as Apprenticeships

But the part that interests me is where the researchers delve into why employers struggle to fill vacancies. The Employer Skills Survey gives the most common reason as ‘low number of applicants with the required skills’, which can give the impression that there’s nobody out there, or that applicants are not good enough. In actual fact, eight main overlapping reasons emerge from the work – I’ve condensed them to seven as I think two of them can be combined.

1. Not enough people. The economy has grown relatively quickly since economic recovery began and so some employers who want to expand have found that there are not enough qualified employees in some fields to meet demand. Engineering, IT and business services are all affected here.
2. Disadvantageous location. Anywhere that is off the beaten track and, in particular, does not have good public transport links, is often perceived as a less desirable job and those locations will need to be sold to potential employees. Graduates tend to be more concentrated in larger cities and areas outside those cities may find a smaller talent pool to draw upon. And not everyone wants to work in London, either.
3. Narrow job specifications. The narrower you make your specification, the fewer people will have the skills you want and if the role is especially niche, the less likely training providers will run the specific courses you need people to have attended. This can often go hand-in-hand with other issues on the list. In these cases, employers may need to be a little more flexible with their requirements and readier to accept the need to train new graduates.
4. Wanting cutting edge skills. Rapid technical change means employers seek skills mixes that may not really have come to the employment market yet in order to exploit new business opportunities. Obviously, this is particularly pronounced in the tech sector. We need to think about how universities can address issues of rapidly moving skills demand in the context of degrees that typically take three years to deliver, but also employer training may have to play a central role.
5. Wanting skills that are on the way out. Skills supply can be falling faster than demand. This is best illustrated with an example – a lot of people have old gas boilers which need servicing, but the technology is obsolete and newly trained gas engineers are obviously trained in new tech. As experienced engineers retire, their skills are still needed at the moment, but new engineers are understandably reluctant to train in outdated skills. This is less of an issue in the graduate market, but it’s not one that’s readily soluble at the moment unless there’s a way to be very creative with training.
6. Unattractive terms and conditions. Never assume that a company – particularly a smaller business – really knows what the current going rate for new employees in their industry and in their area actually is. They will pay what they think they can afford and when that happens to be below the local wages for the people they need, that’s a problem. This seems to be a particular issue for graduate roles in tech, where starting salaries can be quite high. Employers in this position may need to learn to sell their positions effectively, to write better job ads, and we need to help them fully understand local labour market conditions.
7. Unwillingness to compromise. ‘I want the perfect employee’.  The employer has written a job spec, and if they don’t get exactly that graduate, why, they won’t recruit at all. This specification often asks for a specific mix of technical skills, soft skills, the right qualification (employers here are wary of what they see as overqualification as they see that as a signal that the employee will not wish to stay) and the right kind of employment history (such as not having moved jobs very often). There’s a lot going on here, to do with managing employer expectations, and with ensuring that graduates – particularly technical graduates – supplement good technical skills with soft skills to ensure they can get good jobs.

Employers who struggle to recruit find increased pressure on existing staff, lose business,  and struggle to innovate and adapt to change, so it’s in everyone’s interest that we support them to understand the labour market, to make sure they write good  job adverts and have realistic expectations of the talent that is out there so that business can find it easier to get – or train – the people it needs to grow.

There is a finite supply of talent out there and every time you specify a skill or an attribute, you exclude a few more people who feel they don’t match that specification. It’s not hard to get your potential employee pool down very quickly, and so we all have to work to make sure that pool has the best talent mix we can.

 

Moving through history

The development of the Teaching Excellence Framework and the way that it will use measure of graduate employment as a metric to judge institutions makes it all the more important that we get a real grip on how the graduate labour market works.

Graduate migration – see my most recent piece for the latest data – is a phenomenon that has subtle but profound effects on the way we can and should think about graduate employment.

To help understand the migration groups, here is a graphic developed by my excellent colleague Ellen Logan.

Let’s revisit this year’s migration patterns.

Employment groups for UK domiciled graduates from 2013/14

It is now a slightly alarming 11 years since I first conducted an analysis of this kind, so let’s have a look at the data from graduates from 2002/3.

Employment groups for graduates from 2002/3

There are some differences – most notably, Loyals have increased for all regions except London (and, interestingly, Northern Ireland), Incomers are also up in most places, and Stayers are down, quite a bit, in some places (especially Scotland).

But the basic patterns have not moved in over a decade. We may find that, in the future, regions retain slightly fewer people who moved to the area to study, but more people will not move far to study or work but these patterns are what graduates do to find work, and we can assume that this will continue. .

This shows that graduates are not as mobile as a lot of thinking has them and that many can’t or won’t move far or to locations that they do not have a connection with for work. There are practical implications – most graduates who go to work in London, for example, are either originally from the region or studied there. And the same effect is intensified for every labour market outside London.

If you’re a recruiter, this ought to make you think about how you source your talent. If you recruit in Leeds, your new recruits will largely have lived or studied nearby. If you a London-based recruiter with a diversity agenda, even if you see yourself as attracting talent from all over the country, in reality many of those attracted to your offer will have existing ties to the capital, with  implications for your ability to recruit BME graduates and graduates from less affluent backgrounds.

If we are to have metrics based on salary, therefore, we have to understand that they are at least to some degree a measure of where an institution is sited and where they draw their graduates from.

Much has been made of the IFS finding that a group of institutions have graduates who earn under the national average for all workers; anyone familiar with the graduate labour market can probably have a good stab at the identities of those institutions, predominantly universities in less affluent parts of the country, serving labour markets with low wages. We should not allow a situation to develop where institutions with a valuable function in developing local economies feel incentives to send their talented graduates outside those economies to ensure metrics are met.

For institutions, it makes it clear that you will need to be absolutely on point about your local labour markets and to understand where your student cohort comes from. There’s a lot more to understand about how and why graduates move to find work, and what this means for the UK. Is it right to think of the ‘UK graduate labour market’ at all as anything but an abstract, or is it really a series of overlapping markets with their own character and needs? And, crucially, how do we ensure that a framework develops that does not effectively penalise universities for not being near London? We have work to do.

 

 

 

Graduate migration – who stayed and who left in 2015

This is an unabridged version of my piece on graduate migration that appeared in the most recent edition of Graduate Market Trends.

The ‘Masters job’. Does it exist and how could we examine it?

This is an unabridged version of a section from my recent article in Graduate Market Trends about the Masters labour market in the UK. The first section, on Masters employment, is reproduced in unabridged form here.

There is a lively ongoing debate about the ‘graduate job’ and the question of which jobs require degrees. There is, however, consensus that a jobs market does exist for which first degrees are the main qualification and which is not always accessible for workers without this level of qualification.

What do Masters graduates do?

This an unabridged version of the employment part of my piece on Masters graduates that appears in the quarter’s Graduate Market Trends.

Why it’s ok for graduates when a company broadens recruitment

There has been a lot of excited comment about Penguin’s decision to open out their recruitment process to people who have not been to university. Some people have seen it as a sign that a degree is not as valuable in the workplace, and some links have been made to other companies broadening their talent searches. But to me, it seems like a perfectly reasonable move, and nothing to get too excited about. Why is that?

Firstly, publishing, as an industry, is not as diverse as it could be. In 2014, 86% of graduate entrants to the industry were white (as opposed to 79% of graduates), 85% had 2:1 or above (as opposed to 68% of graduates) and 61% came from a area of high participation in university, as opposed to 54% of all graduates. The book publishing industry is normally even more socially selective than the industry as a whole. Any measure that addresses this is to be applauded, although, I don’t think it’s too cynical to suggest that Penguin are probably still going to recruit a lot of white, middle-class graduates.

Secondly, it’s clear from even a cursory glance at employment data for the industry, or vacancies, that some of the jobs that will be on offer don’t need a degree, and that’s fine. Just like every other industry, publishing needs office clerks, sales administrators, goods packers, receptionists and other roles which are vital to keep the company running, but don’t need a degree. Last year, just 38% of new graduate recruits to the publishing industry said they absolutely needed their degree for their new job (another 35% said it wasn’t an absolute requirement, but it did help). Graduates have options in the current market, and it does them little harm for employers not to ask for degrees for jobs that don’t need them.

Thirdly, I keep talking about skills shortages, and publishing is not immune. This year the Higher Education Statistics Agency, HESA, are projecting that, for the first year in some time, we will have fewer graduates than in 2015. Yes, that’s right. We already have shortages, we’re likely to have more vacancies this year, and we’re likely to have fewer graduates, in total, than last year. Publishing is a popular industry, but it’s very London-centric, it doesn’t always pay the best wages, and London will be a battleground for a shrinking pool of graduate talent this year. And we know that graduates are declining job offers because of the strong position they find themselves in. Smart companies will acknowledge that in a market where graduate talent is in demand, it makes sense to broaden their options. Graduates have no need to lose sleep over it.

And finally, last year, Penguin did this to recruit new marketing talent. ‘The Scheme’. Open to anyone, regardless of qualifications. Yes, they already did this last year. But it got a lot more column inches in 2016. Penguin have some savvy marketers.

2016 – the year of graduate undersupply

This morning, RICS, the Royal Institute of Chartered Surveyors, released their Q4 Construction Market Survey. 66% of construction professionals reported recruitment difficulties to be the most significant barrier to growth in the last quarter of 2015. 60% of survey respondents had difficulties finding quantity surveyors.

At the same time, HESA’s new figures on student numbers showed that the number of students enrolled in UK higher education fell 1% last year.

The RICS data follows a pattern emerging from many sources in recent months. The British Chambers of Commerce noted in their Q4 Quarterly Economic Survey that 79% of manufacturing companies and 64% of service companies had trouble recruiting last quarter (more data on their excellent web site). The image below, taken from their site, puts those difficulties into context.

The British Chambers of Commerce do some very good graphics

And a recent report from Universities UK (to which I contributed) notes that we currently have an undersupply, in total, of graduates.

We will shortly get Employer Skills Survey data from the UK Commission for Employment and Skills that will help us to map the nature and extent of many of these undersupplies, but even data from the 2013 survey outlined widespread shortages of graduates across multiple sectors.

Some of the most serious are in engineering, where we simply don’t have enough graduates in most disciplines, and in IT, where there are not enough graduates with the skills to meet demand. The RICS report shows that allied professions particularly surveyors, but also planners and related roles, are in short supply. But the focus on STEM skills does tends to distract from the fact that we also have widespread graduate recruitment difficulties across many service industries.

There are two main ways we can address this issue wrongly. The first is to assume that the problem is that graduates are not good enough and berate the education system. Although not all graduates will be as ready to enter the workplace as they could be, this only applies to a minority. The 2013 ESS found that the large majority – well over 80% – of recruiters felt that graduates were well-prepared for work. The second is to blame graduates for their career choices. Now we charge students £9,000 a year to take a higher education degree, explicitly on the grounds that they will personally benefit from their study, they quite reasonably feel they can then do as they choose with that qualification.

The issue is that there are not enough graduates, and that those we do have are not always easily convinced or trained to enter the professions where we most need them, and that this undersupply of graduates is an active barrier to growth in some industries.

This can be frustrating. A majority of graduate occupations are, at least in theory, open to graduates from any discipline, and this goes particularly for occupations in business service industries. We see this most starkly in marketing, an expanding occupation with significant demand for graduates and where marketing graduates made up a relatively small minority of entrants in 2014 because there were simply not enough to meet demand.

But it’s not always that easy. For many graduates in less vocational degrees that allow significant career flexibility, the sheer range of options can itself be paralysing. It becomes very difficult to choose from the dizzying range of career options available, especially when a student is not really familiar with what they all entail. And whilst there is more some sections of the economy can do to persuade workers with the right skills to join their industries, the same is not true everywhere. If we want to fill mechanical engineering vacancies, we need suitably qualified people.

But are we doing enough to help that process along? Do we make it easy enough for graduates with appropriate qualifications to convert to professions like engineering or surveying where the lack of qualified staff actively harms economic growth?

As we go into 2016 with recruitment difficulties towards the top of the agenda, these are some of the questions we need to wrestle with.

For institutions, we need to ensure that students get the right support and guidance and to build their confidence so that they feel equipped to make decisions. Just because the market is rather better for graduates in 2016 than it was in 2012 doesn’t mean that the decision making process is any easier.

For employers, this year will see more recruitment and retention difficulties. It will mean being more innovative about addressing them, looking more widely at the likely supply of graduates in their business areas, examining reward packages and ensuring that they remain competitive and about developing new strategies to cope. These issues are not likely to go away until we have another recession, and even then they will be only temporarily put on hold before they return.

For students, this means recognising that good graduates will be in demand from multiple sectors, but only those who keep their options open. Good advice and guidance can help make those difficult decisions – but they should never forget that they have a long working life ahead of them, and it’s ok if they don’t quite know what they want to do, or even if they spend a little while doing something that they later conclude isn’t for them. Better to make career mistakes early.

As recent economic news, and the worries expressed from some quarters shows, there is a lot that can happen in 2016. But the most likely outcome at the moment is that in 2017 we’ll have more shortages of graduates over more areas. Let’s try to mitigate that as much as we can.