The Government has committed universities and colleges to producing more graduates. In July, it announced that an extra 80,000 places for higher education would be created over the next three years, as a result of the Comprehensive Spending Review. With more than 120,000 unsuccessful applicants to colleges and universities through UCAS each year, this expansion of higher education looks like a sensible response to the tremendous demand from potential entrants.
But the Dearing Committee warned last year, that any future changes in student numbers should also take into account whether or not employers needed more highly qualified candidates. Ominously, the most up-to-date labour market figures suggest that Britain is already suffering from a graduate glut.
This summer, more than 250,000 students received first degrees from UK universities and colleges. Most of these new graduates will be rewarded for their three or four years of hard work through above average salaries and continuous employment throughout their careers.
But competition for jobs will be fierce. In July, the Association of Graduate Recruiters (AGR), representing more than 550 of the UK's leading employers, reported that its members were receiving 60 applications, on average, for each vacancy. Consequently, many of the class of '98 will have to lower their expectations and will find themselves under-employed, in jobs for which they are over-qualified.
This, however, is just the tip of the iceberg. Statisticians at the Department for Education and Employment (DfEE) presented evidence to the Dearing Committee that the growth in graduate jobs has lagged well behind the expansion in student numbers during the last decade.
Using labour market projections produced by the University of Warwick's Institute for Employment Research, the DfEE calculated that a surplus of 337,000 graduates will be generated in the 10 years to 2001. Longer term forecasts suggest that the pool of redundant graduates will grow until 2016. These figures were prepared even before the 80,000 new places were announced.
It might be reasonable to think that employers would be happy to have so many graduates clamouring for jobs. Yet 38 per cent of AGR firms are expecting recruitment shortages this year, mainly for posts in computing, electronic engineering, and other scientific and engineering disciplines.
The AGR points out that there are plenty of applicants, but a shortage of graduates who are "technically competent and commercially aware". Employers are now becoming dependent on sophisticated selection methods to reduce the flood of inappropriate applications from those unable to offer the necessary skills.
Recruitment shortages, despite an overall graduate glut, have arisen partly because much of the recent expansion in student numbers has been driven by the preferences of applicants, who have not necessarily chosen to study subjects which are in demand from employers. Although there has been a large rise in applications for computer science courses compared to last year, disciplines such as chemistry, physics and electronic engineering have all recorded marked falls.
If this trend is maintained, then the extra 35,000 students, who will begin at English universities and colleges in 1999-2000, are unlikely to bring much relief to employers. Instead, they are likely to join the 34,000 graduates who each year are unable to find jobs which match their qualifications.
Even if all of the new higher education entrants are at sub-degree level, the situation will not be any better. According to the Higher Education Statistics Agency, more than 40 per cent of students who complete sub- degree courses at higher education institutions immediately embark upon first degrees. With so many students regarding these courses as stepping stones towards a degree, the glut would be extended, not prevented. There is no extra demand for holders of sub-degree qualifications in the labour market either. The Institute of Employment Research estimates that 97,000 will have been unable to find appropriate employment between 1996 and 2001.
The graduate glut also has some serious consequences for taxpayers. During the Nineties, government and taxpayers have enjoyed a social "rate of return" of 7 to 9 per cent from higher education study, because the greater productivity of graduates brought extra tax income to the government, and more than compensated for the cost of educating them. As the Treasury requires a minimum 6 per cent rate of return, higher education has represented a good public investment.
These calculations, however, were based on graduate productivity levels during the early Nineties. The DfEE has worked out that if the excess graduates end up in employment which does not fully utilise their extra skills, then the social rate of return will fall below 6 per cent.
The overall number of UK applicants to UCAS in 1998 is down compared to last year. This drop is even more serious when one considers estimates from the Government Actuary's Department, that the UK population of 18 and 19-year-olds has increased by 6.3 per cent since last year. Even a small percentage rise in the number of applicants aged under 21 would mean that proportionately fewer young people applied for higher education in 1998.
Potential applicants may be beginning to have doubts about higher education as an investment. In the early Nineties, the private rate of return to a student was 11 to 14 per cent, because the cost of attending university, and forgoing earnings for three or four years, was outweighed by graduates' higher salaries.
But the DfEE forecasts that the glut could reduce the graduate pay premium by as much as 50 per cent. With the added cost of tuition fees, and the phasing out of maintenance grants, the potential private rate of return for students starting courses this autumn will be smaller than for any previous generation.
At present, there are more than 6.6 million holders of higher education qualifications of working age in the UK. Only 3.2 per cent of them are unemployed, and more than three-quarters are working in the higher level managerial and professional posts, which attract above average salaries. For the majority of graduates, therefore, higher education has been a good investment. Will this still be true if the graduate population continues to swell?
The author was formerly Labour Market Analyst at the Higher Education Careers Services Unit, an agency of the Committee of Vice-Chancellors and Principals