Are falling graduate salaries good or bad? 10:27 am / 14 April 2014 by Jock, at Jock's OXFr33? Blog - Thoughts, and occasionally Confessions, of Jock Coats, Citizen of Headington
What to think of this...the Times Higher reports that (new window):
Research by the Complete University Guide says graduate starting salaries in professional posts fell by 11 per cent in real terms, from £24,293 to £21,702, between 2007 and 2012.
If falling salaries (many of them in fact "rents" in economic terms - the largest falls have been in heavily regulated, and therefore rent-receiving, professions, medicine and law) are going to feed through eventually to lower costs for consumers of those rent-supported services then this is, by and large, a good thing. And to be fair to them, for once a good part of Labour government policy if I recall correctly (at least in terms of training more medical professionals). There are more people who potentially benefit from cheaper doctors or lawyers than there are people in those professions who will see their rent premium fall. But that assumes that labour cost savings feed through to lower consumer prices, which is not a given...
On the other hand, the overall graduate premium has barely moved, so everyone (at least those starting out in employment whether graduate or not) has seen their income fall in a similar proportion (it is in fact of course a larger proportionate fall for non-graduates). And of course, this is not only the case for those starting out - in higher education as a whole, the pay settlements since the recession started have seen us all, of all ages and skills, worse off on average by 13% in real terms. Maybe new graduates, in this context, should not grumble: "we're all in this together", as they say!
For those at the start of their independent lives also (graduate or not) one of the biggest costs for them, housing costs, which will take up a greater proportion of their income than it does for someone who has already half paid off their mortgage, have been rising and for many in excess of the average inflation rate. Presumably (somebody correct my economics if I am wrong please) falling real salaries/wages is the same thing as saying a greater *proportion* of production being returned to either capital or land (in interest or rent), and a lower *proportion* to labour (wages). And presumably implies a yet increasing transfer of wealth from young and least well off (less likely to have capital or land assets) to the older and best off (landlords and shareholders).
The article doesn't say that we are getting a commensurate number of extra doctors or lawyers though, only that employers are getting their pick without increasing the salaries offered. So longer term the rent problem is not going to go away through increased supply. And this must presumably apply throughout the labour market, skilled or unskilled.
So, are they a good or bad thing, these declining graduate salaries? Well insofar as this is in line with the whole labour market, it cannot be good that the returns to capital and land are rising and the returns to labour falling, can it? In other words that profit and rent are taking a bigger share of the pie and wages a smaller share. But if the graduate premium itself is not falling significantly then the existing arguments for going to university still apply: "you'll be better off than if you don't go". And again, the money value of the premium may have fallen an incy-wincy bit, but because non-graduate salaries are already the lower of them, this means an increasing percentage graduate premium: "you'll be an increasing proportion better off than if you don't go".
If there is a greater relative fall in the longer term in salaries for those heavily rent-receiving graduate professions, that would be beneficial to those (most of the population) who have to pay for their services. Removing rent is a good thing, but if the saving just passes from employee to employer and not to consumer, the rent remains the same, just even more concentrated: definitely a bad thing.
Not particularly related to the above, but something I want to mention anyway, I have a pet theory about the long term socio-economic effects of a higher proportion of the labour force being graduates that I don't really see discussed much in "the literature": that it will tend to diminish the difference in returns between management roles and production roles and therefore tend to lead to a more equal distribution of economic welfare. Middle class technical/production/specialist graduates negotiating with their middle class management graduate peers, or lobbying their middle class graduate politicians are in a relatively better negotiating position, after three years of networking with each other, than when it's between management graduates and people from whom they diverged, educationally and very probably socially, at the end of their school years. That's if, in the case of former private school pupils, who still dominate in rent-seeking jobs and politics, they ever met in the first place. Once you are at university, those from less well off socioeconomic backgrounds have relatively greater equality of opportunity with their graduate peers from wealthier backgrounds than if they don't even make it to university.
For me, and especially as regards my dissertation, will all this translate into greater demand for postgraduate education and so financing? With a predicted level of up to 75% of the post-2012 £9,000 fees regime loans likely to go unpaid according to research released last week by the Institute for Fiscal Studies for the Sutton Trust (I believe it was) maybe we're into an era when people simply cannot afford to take on more debt. Though it's possible the opposite may be true - that to take out, say, £15,000 for a one year Masters on top of your nearly £45,000 debt from your undergraduate degree may produce more than a 33% greater premium and be very much worthwhile doing.