Graduates face earnings slump

Tim Wallace
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AFTER being battered by high tuition fees and soaring youth unemployment, new figures out today show young people are set to suffer further as real graduate pay falls to its lowest level in almost a decade.

Starting salaries for university leavers are unchanged this year at an average of £25,000, a significant fall once rising prices are taken into account, according to Incomes Data Services (IDS)

Using inflation-adjusted figures since the year 2000, starting salaries are at their lowest since 2003 when they stood at £18,524, and are even below the £18,839 average paid to new recruits in 2000.

On this inflation-adjusted measure, this year’s starting salaries are the equivalent of £18,705, down two per cent on last year.

And rising oil prices threaten to hold up inflation, dashing economists’ hopes that price pressures will ease, and cutting the value of frozen graduate salaries still further.

Graduate positions remain in high demand, with 43 applications for each graduate vacancy last year, up 12 per cent from 41 in 2010.

Yet there are some signs of life in the market. IDS expects a 9.1 per cent rise in graduate hiring this year as some firms re-open or expand schemes that had closed through the worst of the economic downturn.

Nonetheless, nine in 10 firms still plan on freezing graduate starting salaries this year.

“It remains a buyers’ market for graduate recruiters this year, with starting salaries set to stagnate for a further year,” said IDS researcher Nasreen Rahman.

“High rates of price inflation over the last few years have been eating away at the purchasing power of starting salaries for new graduates.”

“Even though the demand for graduate recruits is showing signs of revival, the competition for places means that employers are under little pressure to increase current rates despite high inflation.”

Even the highest paying sectors have been subject to a pay freeze. New lawyers’ salaries remain unchanged at £36,000 while starting pay in banking and finance will also stay put at £31,250.

The figures provide further evidence of the squeeze on earnings and consumer spending, which Ernst and Young’s Item Club says is “delaying prospects of a consumer recovery”.

Indeed, strong consumer spending is supporting a healthy economic recovery in countries like the US, while it fell for four consecutive quarters in the UK last year, and spending is only expected to rise meaningfully into 2013.