Shrinking degree premium
UNIVERSITIES were originally established as centres of higher learning, places to pursue knowledge, not wages. The Abbasid-era Bayt al-Hikmah (House of Wisdom) in Baghdad brought together scholars who translated Greek, Persian, Indian, and Syriac works on philosophy, medicine, and astronomy into Arabic, and courts in Cordoba and Cairo built great libraries of their own to attract innovative thinkers. In England, the University of Cambridge has, for over 800 years, been at the centre of education, innovation, and intellectual debate, shaping some of the greatest minds in history, such as Isaac Newton, Charles Darwin, Alan Turing, Bertrand Russell, John Maynard Keynes, and Stephen Hawking. Across the Atlantic, Harvard has since at least the 19th century championed reason, research, and intellectual freedom. By the mid-20th century, its mission had widened to academic excellence, research dominance and democratic access through merit-based admission, and the university degree had become the passport to a profession.
Today’s teenagers and their parents see it differently. They pursue a degree for its economic value, and employers treat it as a signal of advanced, scarce skills. Both assumptions were long taken for granted, but both are now in doubt. Claudia Goldin and Lawrence Katz, in their work on the ‘race between education and technology’, showed that more education does not automatically meet more demand for skills. The information revolution sustained a four-decade boom in knowledge jobs, so that the graduate premium rose even as the number of graduates grew.
That long phase now appears to be ending. Recent research by José Azar, Mireia Giné, and Javier Sanz-Espín finds that the US wage premium for college graduates fell steadily between 2022 and 2026, returning to its mid-1990s level, a total drop of about eight per cent. In the UK, the FT’s John Burn-Murdoch reports a similar pattern, with a sharp fall even among STEM graduates and in London’s knowledge economy, despite a slowdown in the share of young people going to university.
What makes this striking is that it is not a story of too many graduates. Supply has levelled off in both countries, which would ordinarily push the premium up. The fall is taken as weaker demand, attributing about 28pc of it to the exposure of white-collar occupations to generative AI, although the link is not proven to be causal. Whatever the cause, the equation of academic achievement and economic value looks like the relic of a passing era.
To change how our society views skills, we need to bring them into the formal education system.
Pakistan’s own system shows the strain. The country has 278 recognised universities and degree-awarding institutions, of which 163 are public, accommodating roughly 85pc of active students. The Higher Education Commission has permitted a rapid growth of private universities, many of them thinly resourced, which enrol thousands of students for revenue, so that their graduates struggle to compete with those of elite institutions.
University enrolment, which peaked at 2.23 million, fell to about 1.96m in 2024-25, a drop of around 12pc, or more than 260,000 students, in three years. Even after eligibility criteria were relaxed, 743 of 22,300 medical and dental places remained vacant in 2025-26. The fall has been blamed on inflation, rising fees, reduced government spending, and doubts about what a degree now returns.
If the university degree is no longer the certain route to a livelihood, Pakistan needs a credible alternative, and the evidence points to skills-based training. Yet our technical and vocational education and training (TVET) sector is beset by systemic weaknesses: outdated syllabuses, poorly equipped workshops, instructors with little industry exposure, inadequate funding, and certificates that neither employers nor foreign labour markets trust. The result is a severe gap between the skills industry needs and what the system supplies.
Demand-side barriers make it worse. Because of social stigma attached to manual and technical trades, families favour academic degrees and secure government jobs that offer regular increments, pension and opportunities for corruption, so participation is low, and even lower among women. Responsibility is also divided between the federal body, National Vocational and Technical Training Commission (NAVTTC) and provincial authorities, TEVTA, producing inconsistent policies and fragmented oversight.
To change how our society views skills, we need to bring them into the formal education system on a large scale, using the network of 250,000 public and private schools and 11,000 colleges to teach skills alongside the standard curriculum. Chief ministers should champion this change and lead the effort personally.
To bring scale and rigour to the sector, NAVTTC should evolve from a traditional regulator into a dynamic, market-driven facilitator, taking its cue from systems the world regards as vocational success stories. Germany and Switzerland train young people inside firms to standards set with industry, so that apprenticeships carry the same esteem as a degree. Germany’s ‘dual system’ splits a student’s time between vocational school and real-world company work, and the Swiss vocational system is prestigious and market responsive. Singapore’s Institute of Technical Education shows how state leadership and funding tied to employment outcomes can raise the status of technical education.
Forging binding, legally structured partnerships, beyond MOUs, with global TVET leaders can systematically transform the entire training ecosystem. NAVTTC could partner with the Swiss Federal University for Vocational Education and Training to overhaul instructor training, adopt a German-style apprenticeship policy to build an industry-driven, dual vocational training system across Pakistan, and establish a joint venture with Singapore’s ITE Education Services to design and audit digital training centres.
A degree will remain valuable for those who can afford it and use it well. But a country cannot build its future on a credential whose price keeps rising while its worth declines. Pakistan should teach its young people the skills the economy will pay for, from the trades to communication, IT, AI, entrepreneurship and leadership, including for graduates. That would free universities from producing mass job certificates and let them return to their founding purpose: to nurture reasoning, scholarship, philosophy, innovation and the liberal arts, and to shape independent minds and original thinkers.
The writer holds a PhD degree in economics from the University of Cambridge, and is the author of The Shady Economics of International Aid. He has served as chief economist of the State Bank of Pakistan and senior adviser at the IMF.
Published in Dawn, November 4th, 2026
