The Class of 2012 will earn 2% less in real terms than those who left university a year ahead of them, as graduate salaries are expected to fall to the lowest level since 2003 this summer, new research has found. Two factors are to blame: the spiralling cost of living (inflation) – and the failure for graduate employers to significantly increase wages, because they feel it is a ‘buyers’ market’.

A report from the Incomes Data Services found that 90% of employers plan to freeze starting salaries for graduate entrants this year, despite a general increase in the cost of living in the UK. In real terms, this means new graduates face a 2% ‘pay cut’ on what those in the year above them at uni were earning last year. As many young workers tell Graduate Fog you are already struggling to make ends meet, the news that things are set to get worse is very serious indeed.

According to the research, the median graduate starting salary has remained unchanged since 2011 at £25,000. But when that figure is adjusted to account for high inflation and cost of the living, graduates actually face a pay cut of 2%, from £19,020 last year to £18,705 this year, the report found. In other words, graduates are now worse off in terms of spending power this year than they were in 2011. The last time that graduate starting salaries were lower than this year’s estimate was in 2003, when graduate salaries were £18,524 in real terms. (Graduate spending power was at its peak in 2008, when real terms pay hit an all time high of £20,601.)

Nasreen Rahman, a spokesperson for IDS, said:

“With starting salaries stagnating, the high rates of price inflation in recent years have been eating away at the purchasing power of the wages paid to newly recruited graduates. In real terms, it can be seen that graduates starting work this Summer can expect to be paid slightly less than their counterparts in 2000.”

But high inflation is only half the story. The research found that fierce competition among graduates for a relatively small number of roles was also a major factor. Even the good news that the number of graduate jobs is set to increase by 9.1% this year is unlikely to make much difference, as Rahman explained:

“Demand for graduates is expected to be relatively buoyant in 2012, but this is unlikely to impact pay levels. With so many graduates competing for positions it is clear employers see little need to boost starting salaries. 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.”

These statistics have come some way to confirming what we at Graduate Fog have suspected for a long time – that the reality of life for many graduates is not being reflected in the figures that the government and universities are putting out. Furthermore, these figures do not take into account the huge number of graduates who are still hunting for jobs, working part-time because they can’t find full-time work, or ‘interning’ for free (or next to nothing). If those young job-seekers are taken into account, what would the true ‘average’ graduate salary be?

Are you surprised to hear of the 2% pay cut for graduates? How much are you earning – and how much would you need in order to live comfortably? Are you forced to claim benefits because your wages don’t cover your basic living costs?

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