The graduate pay premium could come tumbling down over the next few decades, according to the Institute for Fiscal Studies (IFS), with companies unable to carry on offering bumper pay packets for swathes of degree-holders.
Recent graduates earn more than £12 an hour on average, while the typical employee in the same age group with only GCSEs or A-Levels takes home an average of just over £9 an hour, the IFS found.
This pay premium, the difference between earnings for the two groups, has held “remarkably” stable for cohorts going back to the 1950s.
However, the IFS thinks employers have already shifted their business models as much as possible to incorporate the swelling ranks of graduates, and warned “future increases in graduate numbers could reduce the graduate wage premium.”
Studying graduate salaries back to the 1950s, the IFS said: “The main reason for the lack of a decline in the graduate wage premium has been because firms have used the increased supply of highly-educated workers to switch to a different, less hierarchical and more decentralised management structure.
“This has had the effect of creating more graduate jobs and left the graduate wage premium unchanged.”
As the proportion of graduates has more than tripled over the last two decades to stand at 41 per cent, the IFS added: “This process cannot go on forever, and there are now signs that it might be reaching a natural end, with some falls in the wages of graduates in the private sector relative to schoolleavers in the most recent years.”
The report will make gloomy reading for students collecting their A-Level results up and down the country today, as a separate study from the Chartered Institute of Securities and Investments (CISI) found 89 per cent of people already working in financial services believed students were paying too much for their university courses.