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A new report by The Work Foundation published today argues that, contrary to popular belief, the UK actually needs more graduates and the only viable option will be to increase fees.

The challenge will be for Vince Cable and his Coalition partners to implement this in a way which maximises access. But these graduates also need to have better quality skills in the right areas to support the sectors that will drive recovery and economic growth over the next decade.

'Despite the dramatic expansion in students graduating each year, the economy does not have an oversupply of graduates - high unemployment is affecting graduates in the short-term, but as the economy recovers long-term demand will increase as the knowledge economy develops. Knowledge economy activities depend on the ability of workers to process, synthesise, interpret and communicate information – key graduate skills,' said report author Charles Levy.

Associate director Ian Brinkley added, 'Jobs which depend on graduate skills have fared well in the recession – employment in knowledge associated occupations has increased in the past two years despite the recession. Job losses have been concentrated in manual, administrative and unskilled occupations. In this way the recession has accelerated progress towards the knowledge economy. This is strengthening the long-term need for more graduates with the right skills. This demand will need to be met through both the sustained expansion of the higher education sector, and through less restrictive migration policy for high level skills.

'Producing graduates with strong STEM skills will remain a high priority, but the focus should be much more on whether the current output from universities fully meets the needs of modern industry and the innovation system. This will demand a more imaginative approach to how the government supports the high level skills for innovation.

Levy concluded, 'Delivering more and better graduates will be costly, particularly if provision increasingly focuses on the expensive-to-teach STEM subjects. Our research concluded that simply following an efficiency agenda to save money will not enable the much needed continued expansion of higher education and cuts in spending could impair the quality of teaching. While the idea of a graduate tax does have intellectual appeal, this is not currently technically feasible due to a range of reasons including complicated financial structures and EU restrictions. In this climate of public sector austerity, the available evidence confirms that the only remaining viable option for a government that has to deliver higher education expansion is to increase fees. The challenge will be for the government to implement this in a way which maximises access.'

The sustained strength of demand for graduates can be most clearly seen in the stability of the wage premium which graduates can command in the labour market – OECD estimates show the additional premium earned by graduates over those with mid-level education slipping only marginally in the past ten years from 157% in 1998 to 154% in 2008 (source: OECD Education at a Glance 2010).

Employment in knowledge associated occupations (managerial, professional, associate professional and technical) increased by approximately 30,000 between the first quarters of 2008 and 2010. In contrast, manual, administrative and unskilled occupations saw a fall in employment of 750,000 over the same period (source: Labour Force Survey, ONS).

Notes to editors

Shaping up for innovation: Are we delivering the right skills for the 2020 knowledge economy? by Charles Levy and Laurence Hopkins available free at www.theworkfoundation.com on publication. Media copies available in advance.
This report is produced as part of The Work Foundation’s Knowledge Economy programme: http://www.theworkfoundation.com/research/keconomy.aspx.
Author Charles Levy and associate director Ian Brinkley are available for interviews and briefings.
The Work Foundation is the leading independent authority on work and its future. It aims to improve the quality of working life and the effectiveness of organisations by equipping leaders, policymakers and opinion-formers with evidence, advice, new thinking and networks.

Media enquiries:

Nasreen Memon 020 7976 3507 or 07825 527 036 nmemon@theworkfoundation.com