While work placement is widely considered as a popular approach to fostering employability among higher education institutions, surprisingly little is known about the mechanisms through which placements can support students’ transition from university to the labour market. The aim of this study is to provide a dynamic understanding of students’ transition from work placement to the graduate labour market, with a focus on graduate earnings differentials due to heterogeneous job transitions. Using data collected from three waves of economics graduates of a UK university who did a work placement, this study examined three hypotheses: the gain of a pay premium for graduates who remained with their placement employer, also termed `foot-in-the-door' or employer-persistence effect; the persistence of low pay as students transition from work placement to graduate employment, in short, low-pay persistence effect; the pay progression as students transition from low-pay work placement to higher paid graduate employment, in short, low-pay stepping-stone effect. Our empirical investigation is underpinned by a conceptual model that builds on the movement capital framework, a conceptualisation of career mobility that is based on turnover literature. Specifically, we present a model that links the movement capital that students develop while on placement with their internal and external perceived employability. Correspondingly, these two types of perceived employability are linked to internal and external job transitions, which, in our context, translate into working for the placement or a different employer, respectively, upon graduation. Finally, the type of transition graduates make may lead to differential earnings (salaries).

Our data set consists of three cohorts (2016/17, 2017/18 and 2018/19) of economics graduates with work placement from a UK university. Students can either enrol in the standard three-year programme or the four-year programme with work placement (also known as ‘sandwich’ degree). Students opting for the work placement programme, typically gain full-time work experience with an organisation for 10-12 months, under a fixed-term and paid employment contract. We collected information on students’ demographic characteristics, academic achievement, participation in the work placement programme, extracurricular achievements and previous job experience (from CVs submitted in the context of the placement programme), and graduate earnings and job characteristics. We utilised two sources to collect these data: the University's administrative records and the annual graduate surveys conducted by the Higher Education Statistics Agency. Our methodology consists of three specifications. We start with a Mincer log-earnings specification, that includes the log of real graduate earnings (salary) as a response variable and a dummy variable indicating whether the student completed a work placement and secured a graduate job with the placement employer or not as key explanatory variable. We also control for a wide set of factors that were outlined above. Next, we employ a quantile model to explore changes in our regressors across different points of the earnings distribution, with a particular interest in the top end (90th percentile) of the distribution, as this includes the most competitive graduate jobs. To study the low-pay persistence and low-pay stepping-stone effects, we first define three salary levels for the graduate earnings distribution as well as the placement earnings distribution. These are low, medium, and high salary level. Next, we use an ordered logit model to estimate the probability that a graduate’s salary is low, medium or high. Finally, we use this model to estimate transitions from the three placement salary levels to the three graduate salary levels, especially focusing on the low-low (low-pay persistence) and low-high combinations (low-pay stepping stone).

We find evidence confirming a foot-in-the-door effect. Graduates who transition to the labour market and remain with their placement employer (instead of transitioning to a different employer) earn on average a salary premium of 10.2%. Moreover, the premium increases to 12.4% at the top 10% of the salary distribution, meaning that the foot-in-the-door effect is stronger among highly paid graduates who remained with their placement employer. We also find evidence that supports the hypotheses of low-pay persistence and low-pay stepping-stone effects. In addition, there is heterogeneity in these effects, favouring those graduates who continued working for their placement employer.

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