Graduate workers expect to earn OVER £5,000 MORE than the average starting salary

Against a backdrop of the recruitment crisis and record-high inflation, Startups has found that, on average, today’s employers are offering just over £5,000 less than what graduates expect from a base salary.

Our analysis is based on the latest graduate outcome figures from the Higher Education Statistic Agency (HESA). They show that the average wage for a full-time worker who graduated in 2019-20 is £25,000. 

This is markedly lower than the expected starting salary stated by undergraduate students of £30,244, as found by Bright Network.

The £5,000 disparity is no doubt a response to record-high inflation figures, which have made everyday living costs like rent and commuting more expensive for the average employee.

Below, we’ve broken down the HESA statistics to find what’s causing the gap in pay predictions between employee and employer. Plus, we explore how SMEs can attract and train new talent without exhausting overstretched budgets.

Have UK universities oversold the value of a degree?

The number of young people choosing to attend university has rapidly increased in recent years. In 2022, a record quota of 18-year-olds had a place at their first choice of university confirmed — a 20% increase on 2019, when exams were last sat.

Simultaneously, the cost of university has also shot upwards. As with sales of any product or service, the boost in demand has led to surge pricing.

Until 1998, full-time students in England could attend university completely free of charge. Two and a half decades later, most institutions today charge £9,250 per year of study, amounting to an average debt toll of just under £28,000 upon graduation.

The current interest rate on student loan repayments of 6.3%. That means a full-time worker earning the average graduate pay package of £25,000 will take 29 years to repay 83% of their loan. Only then will it be written off.

It’s not surprising that many higher education graduates are questioning the return on their substantial investment.

What are the highest paid degrees in the UK?

How much a graduate earns in their first year of working depends on multiple factors. These include location, employer, degree type, and industry competitiveness.

In terms of degree type, specialist courses tend to be highly-skilled and return a higher average wage.

For example, a mathematical science degree covers both everything from applied mechanics to accounting. That is why graduate salaries for this qualification range from £19,500 to £28,000.

Below, we’ve listed the UK degrees in order from highest to lowest starting salary, on average:

George has a high-skilled masters degree in chemistry from Newcastle University. Having graduated in 2022, he has since found a full-time job as a Junior Chemist.

In terms of salary, George says he is definitely disappointed. The HESA data shows he is being paid a below-average salary for a physical science degree in the UK.

“The suggested wages for graduates on my course was £27,000”, he reports. “I only started on £21,000 and am now on £23,500 after six months.”

Are apprenticeships the new way forward?

With more uni leavers questioning the validity of their degree certificates, alternative career routes are being positioned as a way to avoid large student debt. One of the most popular is apprenticeship schemes.

Sophie Ruddock is Chief Operating Officer at Multiverse, an apprenticeship training programme which won the Startups 100 Index in 2021.

Ruddock says that young people are defaulting to university due to incorrect assumptions that it guarantees a high quality, well-paid job at the end. She argues this is actually what an apprenticeship promises.

“You still get the world-class learning and the qualification, but instead of the debt you get a salary, and learn some of the most in demand skills that businesses need today,” she posits.

Far from being low-skilled, those who complete a degree apprenticeships (which take three to six years to complete, depending on the course level) receive a qualification equivalent to a full undergraduate or master’s degree.

Ruddock says that more should be done to persuade young people of the benefits of apprenticeships. “The very best jobs of the future, things like software engineering and data analytics, don’t need a degree – you can start learning and earning straight from school.”

What does an apprenticeship offer businesses?

For the business case, apprenticeships are not just cheap labour. They are a strategic hiring decision that scales the workforce at a comfortable, steady rate.

An apprentice can have their learning tailored to plug relevant skills and knowledge gaps within your business. Such bespoke training also makes future talent-based decisions, like succession planning, easier.

Additionally, apprentices offer a practical learning experience for fellow staff members, as a route to develop their coaching and mentoring skills. Younger workers might also bring fresh energy, ideas, and perspective to workforces.

There are also cost savings. SMEs should take advantage of the government’s Apprenticeship Levy scheme to employ apprentice workers.

Companies earning over £3m in revenue each year pay 0.5% of their overall pay bill into a ‘digital fund’. A 10% government contribution is then added to each monthly payment, which the employer can use to cover any apprenticeship training expenses.

How can small businesses attract graduate talent without raising wages?

The majority of small companies will not be able to match the escalating pay expectations of graduate workers. Based on a recent report by the business spending tracker Pleo, 95% of UK SMEs report being impacted by the cost of living crisis.

The crisis has already necessitated cuts to employee remunerations and benefits packages. Three in five have stopped or reduced staff promotions, while 61% have curtailed staff bonuses.

In this climate, SMEs might feel frustrated by the demands that entry-level workers are placing on balance books. But there are still small measures that can be taken to make the pay process fairer for Generation Z. And they don’t have to compromise bottom lines.

Jack Parsons is founder and CEO of The Youth Group, a job support service that has helped millions of young people to gain the work experience needed to launch and grow their careers.

“Graduates may have unrealistic salary expectations, especially if they are not aware of industry averages,” acknowledges Jack Parsons. “At the same time, recruiters and hiring managers have a responsibility to provide fair and transparent salary information.”

If you’re a business owner, Parsons recommends including a clear salary range or figure within the job advert, so that companies can attract candidates who are genuinely qualified for the role and its compensation. Ditto for experience levels, which often don’t align with the ‘entry-level’ description being advertised.

“This can help to streamline the hiring process and save time and resources for both the company and young people,” adds Parson.

Naturally, this should extend into transparent communication on pay scales and the potential earnings or promotions a worker could have in years to come, to counteract any disappointment felt by the initial pay offer.

Another option is to invest in learning and development opportunities as a way to demonstrate the CV-building courses and qualifications that your company can offer in the long-term. It is also effective for reducing staff turnover.

Charlotte acknowledges the useful ‘foot-in-the-door’ benefits for further career development that entry-level positions produce. “Progression is probably more accessible and the opportunities come more frequently,” she says.

Why businesses should care about graduate salary expectations

The £5,000 difference between their salary expectations and the real average wage might make today’s group of graduates seem out of touch.

But as our analysis shows, there is cause for young people’s concerns. This is a generation that has emerged from a pandemic into an economic crisis, saddled by growing student debt, and with no end in sight to their inflated living costs.

Understanding these worries is crucial for SMEs. The ongoing talent shortage means firms need to appeal to Gen Z talent. They might be considered the newbies today, but in just two years time, these so-called ‘Zoomers’ will constitute 27% of the workforce.

Small steps bring big positives. Any recognition you can give to the difficult economic conditions that graduates have emerged into will demonstrate that you are at least listening to their concerns — a simple, but powerful way to bring young workers onboard.