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Research Paper CEE Discussion Paper Series 115

The changing economic advantage from private school


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Private schools in the UK, though far less numerous than state schools, have for a long time played a very prominent role in the UK's economy and society. There is ample evidence that private school attendance generates significant economic advantages later on in life as individuals earn more in the labour market and are more likely to get top jobs. But we know very little about how the economic and social impact of private education has evolved. In this paper we provide empirical evidence on the extent to which private/state school wage and education differentials have changed over time.
Rising wage inequality and falling social mobility form the backdrop. Reasons to expect an increasing advantage for private school pupils over the last several decades include the internal transformation of private schools with an increasing emphasis on academic achievements, and the substantive rises in the resources available, supported by increasing real fees which, in the context of the emergent knowledge economy and rising female labour force participation, parents were willing to pay.
Using data from the National Child Development Study and the British Cohort Study, we examine how pupils born respectively in 1958 and 1970 were faring in the labour market by the time they had reached their early 30s. We show that the private/state earnings log wage differential rose significantly from 0.07 to 0.20 points (and thus the premium rose by 15 percentage points) between the two cohorts, after controlling for family background characteristics and for tests of cognitive and non-cognitive skills that they possessed at an early age. We also find that the private/state gap in the chances of gaining a higher degree rose from 0.08 to 0.18 between the cohorts. Our estimates imply that half the rise in the earnings differential can be attributed to the improved qualifications being achieved in private schools. These results are reinforced by similar findings based on successive cohorts in the British Household Panel Study.
Since the composition of private school participants - from the perspectives of parental income, demographic characteristics and early-age test scores and non-cognitive skills - remained steady between the cohorts, we think it unlikely that the increased differential could be accounted for by any change in the selection of private school attendees.
As private/state earnings and education differentials have widened out at the same time as rising wage inequality, we suggest that type of school attended is likely to have been a factor at play. From this perspective, falling social mobility (as captured by the correlation between own and parents' incomes, documented in previous studies) is more connected to rising private/state earnings differentials than to any change in the social or economic composition of private school participants.
Using an approximate calculation, the average net return to investment in a private school education in 1980 was 7% for boarders and 13% for day students. Since these pecuniary estimates exclude hard-to-measure consumption benefits during and after schooling, they should be regarded as likely to be underestimates. In effect, private schools provided very good value for money. However, since selection into the schools, despite some bursaries and the Assisted Places Scheme, is primarily based on families' ability to pay, it is hard to escape the conclusion that private schools during the period under examination also served to reproduce inequalities in British society. Ongoing research is needed to investigate whether more recent private school graduates are benefiting from still larger premiums to match the rising fees.


Education, Labour Market, and Wages And Earnings



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