With rising debt levels and student complaints against universities at record levels, the value of a university degree has come under fire. But is it only about earning power? Andy Koh looks at the value of a degree in the round.

According to the Institute for Fiscal Studies, the highest earners in the UK are graduates from the London School of Economics, with women earning £45,000 on average and men earning more than £60,000. A great source of comfort and optimism, I suppose, for me and many of my schoolmates.

Any discussion of the overall value of a university degree cannot ignore its financial value. Certainly, one of the greatest (and most tangible) benefits of a university degree is the substantial boost to earnings. UK official statistics show that the median salary premium for graduates over non-graduates was £9,500 in 2020, an increase of £500 from 2019. We see a similar phenomenon across the Atlantic. Labour market research in the US found that the median salary premium of a bachelor’s degree holder over a high school diploma holder was $12,000 in 2021.

However, the overall financial value of a university degree has increasingly been called into question due to its ballooning cost. In the UK, the Guardian reported that “since tuition fees were tripled in 2012, university applicants have faced a large debt that keeps rising due to high interest rates”. In the US, Forbes noted that “the cost of college is increasing almost eight times faster than wages, a trend that is absolutely not sustainable”.

Campus or MOOC?

Stepping away temporarily from the debate over its net financial value, let us consider why a university degree even commands a salary premium. An obvious conjecture would be that students acquire specific knowledge or skills in university that employers value. This may be true for students getting certain specialised degrees in areas such as law or medicine, which impart knowledge and skills necessary for the profession. But this is not necessarily true across all professions, especially with the rapid evolution of jobs in the labour market that could quickly render knowledge acquired in university obsolete. An article from the Harvard Business Review posited that “in an age of ubiquitous disruption and unpredictable job evolution, it is hard to argue that the knowledge acquisition historically associated with a university degree is still relevant”. While knowledge acquired in university might have some value, it is increasingly less relevant and cannot fully explain the premium placed on a university degree.

Maybe what employers value is not specific knowledge gained from university (outside of certain specialised professions), but instead the training of the mind. This recalls a story from the US that I came across. Some high school students complained that learning calculus was pointless as they would never use it in their life again. To convince them of its value, their maths teacher compared learning calculus to a football player’s training – a football player does weightlifting exercises not because the exact motion of weightlifting would be useful on the field, but because it makes them stronger and hence able to perform better. Similarly, learning calculus could be seen as an “exercise” for the mind that prepared his students for learning more advanced concepts. Research seems to support this point, with a meta-analysis of existing literature concurring that “both critical thinking skills and [attitudinal] dispositions improve substantially over a normal college experience”. Research also found that employers value the critical thinking and problem-solving skills developed in university.

With the proliferation and refinement of MOOCs, you can easily learn university-level content online.

That said, a cheaper alternative to a university degree appears to be gaining traction. With the proliferation and refinement of MOOCs, you can easily learn university-level content online. I am currently doing Harvard’s Introduction to Computer Science on edX, one of the largest MOOC platforms, and I am joined by many other learners from all over the world. In fact, the New Yorker reported that more than two million learners had enrolled in this course by 2020. We watch the same lectures as Harvard students, gaining the same knowledge in programming from the course. We do the same problem sets as Harvard students, presumably reaping the same benefits in intellectual training. And this is only one of the numerous courses in the expanding universe of MOOCs. Given such alternatives, it might be insufficient to only consider the acquisition of knowledge and the training of the mind as reasons behind the wage premium of a university degree.

Sending signals

Nobel laureate Michael Spence’s seminal 1973 paper could hold the answer. In this paper, he suggested that a university degree could play a role in “market signalling”. Information asymmetry arises as firms know less about the abilities of job applicants than the applicants themselves. Holding a university degree could serve as a signal that the job applicant has a certain level of ability. Firms are willing to pay more for applicants of higher ability because they are presumably more productive. Hence, we see that the signalling function of a university degree could also account for the salary premium attributed to it. However, unlike knowledge acquisition and intellectual training, signalling is a zero-sum game – the relative value of a university degree attributed to its signalling function increases with the scarcity of university degrees. Having more university graduates reduces the benefit of signalling to an individual graduate but conversely benefits society by reducing income inequality.

So far, we have seen the financial value of a university degree to its holder: a sizeable salary premium arising from the acquisition of knowledge, the training of the mind and the signalling of the holder’s ability. In addition, the acquisition of knowledge and the training of the mind could themselves be seen as standalone benefits of a university degree, rather than merely a means to an end.

More college graduates contribute to less income inequality.

What about its value to society? Spence argued that signalling could have value to both firms and applicants by narrowing the information gap, even if a university degree did not enhance workers’ abilities or productivity. In short, the allocation of labour is more efficient because market signalling deals with the problem of imperfect information.

There are also other positive externalities. Forbes argued that “more college graduates contribute to less income inequality”, citing two pieces of research. Enrico Moretti from Berkeley found that the decrease in the supply of college-educated workers in the US since 1980 has contributed more to income inequality than any other factor. He also found that an increase in the number of college graduates increases the salary of all workers in the same city but benefits high school graduates and high school dropouts to a greater extent than college graduates. Larry Katz and Claudia Goldin from Harvard showed that wage inequality in America would have fallen if the increase in the number of college graduates since 1980 had kept pace with rates prior to 1980.

Dropping value

Overall, a university degree seems to be of value to both individual graduates and to society. Individual graduates benefit from acquiring knowledge, training their minds and attaining higher salaries. Society benefits from a more efficient labour market, lower income inequality and higher salaries of both skilled and unskilled workers. However, emerging trends such as the rapid evolution of jobs in the labour market and the growing popularity of MOOCs increasingly reduce the value of a university degree attributed to knowledge acquisition. The ballooning cost of a university degree may also erode its value. For individuals, the salary premium of a university degree might soon be outweighed by its rising cost. For society, the signalling function of a university degree in the job market could instead become a channel for perpetuating income inequality when the rising cost of higher education reduces access to it. Nonetheless, I still believe that a university degree has value. But for it to remain of value, it is imperative that it adapts to emerging trends, yet is kept affordable and accessible.

• This post was awarded runner-up in the LSE HE Essays in Education Blog Challenge in June 2022 in the student category.

Image source: main photo by  Elena Mozhvilo on Unsplash  / small photo of burning notes by Jp Valery on Unsplash

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 This post is opinion-based and does not reflect the views of the London School of Economics and Political Science or any of its constituent departments and divisions.

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