Getting real about graduate earnings

When we look at real earnings over the same time period, however, a different story emerges. When they were surveyed in 2019, graduates from the 2017/18 academic year were earning, on average, £25,095 per year indexed to 2015 prices. Three years later in 2022, graduates from the 2020/21 academic year were earning only £24,647 in terms of 2015 prices. This represents a decrease in real earnings of nearly 2%. We see this decrease in real earnings only in the most recent year of our data; real earnings for graduates from the 2018/19 and 2019/20 academic years were very slightly higher than those for 2017/18 graduates. In 2022, however, rising prices meant that, even though graduates from the 2020/21 cohort were receiving higher wages from their employers, their purchasing power was lower when compared with previous graduate cohorts.

In order to understand whether the trend in real earnings which we saw at the population level applied equally to all graduates, we split our sample according to the kind of work graduates were doing. We first grouped our sample by Standard Occupational Classification (SOC), a classification system which organizes jobs into nine major groups according to the level of skill required to do a job. The majority of graduates in our study are employed in the top three major groups, with 3.7% working in managerial roles, 59% working in professional roles, and 20.6% working in associate professional roles.

When we look at graduate earnings split by SOC major group, we see that the decline in real earnings which we saw in our whole population was driven in large part by decreases in real earnings for graduates employed in the higher skill groups in which most graduates are employed (Figure 2). Graduates from the 2020/21 academic year with occupations classified as ‘Managers, directors and senior officials’ saw a 5% decline in real earnings compared with graduates from 2019/20 working in the same major group. Similarly, 2020/21 graduates working in ‘Professional occupations’ saw a 4% decline in real earnings compared to the previous year. For graduates working in lower skilled occupations, however, real earnings have remained stable or even increased slightly, with 2020/21 graduates working in ‘Caring, leisure and other service occupations’ seeing a 1% increase in real earnings and graduates working in ‘Elementary occupations’ seeing a 5% increase.

It seemed likely that the different trends in real earnings for graduates in different SOC major groups would reflect trends in earnings in different industries over the same time period. For example, 53% of graduates in the ‘Elementary occupations’ SOC major group work in the accommodation and food service industries, which have seen labour shortages driving strong wage growth in recent years (Appendix B, Table 1). By contrast, many graduates in professional roles work in industries such as education and healthcare, which have seen workers struggling with below-inflation pay rises.[9]

In order to test our hypothesis that trends in real earnings by SOC were indicative of trends in real earnings for graduates working in different industries, we next split our sample by industrial sector, using the Standard Industrial Classification (SIC) system. When we look at trends in real earnings by industry, we see considerable variation, as expected (Figure 3).[10] For example, 2020/21 graduates working in ‘Accommodation and food service activities’ see a 7% increase in real earnings compared to 2019/20 graduates working in the same industry; 2020/21 graduates working in ‘Wholesale or retail trade; repair of motor vehicles or motorcycles’ see a smaller, 2% increase in real earnings. On the other hand, real wages for graduates working in the ‘Human health and social work activities’ and ‘Education’ industries have declined, with 2020/21 graduates in those industries seeing declines of 3% and 4%, respectively, when compared with 2019/20 graduates working in the same industries.

While occupation and industry are different aspects of employment, they are not completely disconnected, and the relationships between the two can help us to understand the trends in real earnings which we see in our population. Within some SOC major groups, certain industries are much more prominent than others (Appendix B, Table 1). In particular, 28% of graduates in professional roles work in the ‘Human health and social work activities’ industry, and another 25% work in the ‘Education’ industry. Among graduates working in caring, leisure and other services roles, 41% work in the ‘Human health and social work activities’ industry and another 33% work in the ‘Education’ industry.

Although they are both dominated by the health and education industries, the professional and caring SOC groups show different trends in real earnings, as discussed above (Figure 2). We therefore considered what might be driving the different outcomes for graduates working in these two SOC groups. Analysis from the Office for National Statistics has suggested that some of the industries with the lowest wage growth in recent years have been industries with a high proportion of public sector workers.[11] Although our dataset does not directly allow us to identify workers in the public sector, we can identify those who work for the NHS, and we can use this information as a proxy measure of public sector employment in the ‘Human health and social work activities’ industry. When we look at 2020/21 graduates in professional occupations working in the ‘Human health and social work activities’ industry, we see that 91% work for the NHS; of 2020/21 graduates in caring, leisure and other services roles in the same industry, 45% work for the NHS (Appendix B, Table 2).

When we look at real earnings over time for graduates working in the ‘Human health and social work activities’ industry, the trend varies depending on whether or not graduates are employed by the NHS (Figure 4). For those graduates who do not work for the NHS, we see a 1% decline in real earnings between 2019/20 graduates and those who finished their degrees in the 2020/21 academic year. For those who work for the NHS, however, we see a 3% decline in real earnings.

Taken together, the different trends in real earnings for graduates in the health industry by NHS employment status and the different rates of NHS employment by SOC major group can shed some light on the trends in real earnings for graduates in different SOC groups. Although both the professional occupations group and the caring, leisure and other services group contain a high proportion of health workers, health workers in professional occupations are more likely to be working for the NHS than those in caring roles (Appendix B, Table 2). The high proportion of NHS workers – who have recently been involved in high-profile disputes around below-inflation pay rises – in the professional SOC group is likely to play a part in explaining the fall in real earnings experienced by that group. Health workers in caring roles, on the other hand, are more likely to be employed in the private sector, where there have been higher pay increases in recent years.

Although our data does not allow us to distinguish between public and private sector employment in the education industry, it seems likely that a similar pattern holds true. The majority of professional roles in education are likely to belong to teachers, many of whom work in the public sector. Caring roles in the education sector, on the other hand, are likely to be in childcare and early years education, much of which takes place in the private sector.[12]

Concluding remarks

High levels of inflation in the UK – and around the world – in recent years have contributed to an increasing divergence between real and nominal earnings for many workers. Our examination of real earnings data based on the Graduate Outcomes survey has shown that graduates working in different industries and occupations have experienced different trends in real earnings over the four years of survey data.

Graduates working in professional occupations have seen the biggest decreases in real earnings, while graduates working in lower skilled occupations have continued to see their real earnings increase. It seems likely that this discrepancy is driven in part by the large numbers of graduates in professional roles who are employed in the public sector, where real terms pay has struggled to keep up with inflation. Since growth has remained strongest in the occupational groups in which relatively few graduates are employed, it is possible that this may play a part in explaining the gradual decline of the graduate premium identified in previous HESA research.[13]

Two of the four years of data included in this study were collected during the COVID-19 pandemic, while the government furlough scheme was in place.[14] While furloughed graduates responding to the Graduate Outcomes survey were given guidance instructing them to report themselves as employed, they did not receive guidance as to whether to report their furloughed salary or the salary they would have been earning had they not been furloughed.[15] This lack of guidance is likely to have caused some uncertainty in our data, particularly in industries such as accommodation and food service which were largely shut down through most of the pandemic.

Our most recent year of data, on graduates who finished their courses in the 2020/21 academic year, takes us close to the end of the 2022 calendar year in terms of reported earnings. In 2022, public sector pay disputes were at a peak, with prominent strikes on the part of workers in the health, education, and transport industries.[16] While industrial action continued into 2023, many public sector workers have reached pay settlements over the course of 2023. After these settlements, it is possible that the divergence between real and nominal earnings in industries dominated by the public sector might decrease if we were to update our analysis in future years.

Despite these limitations, our analysis provides a more nuanced picture of graduate salary data than that which is available looking at nominal earnings alone. Although nominal earnings have continued to grow, real earnings have lagged behind nominal earnings for many graduates in the most recent cohort, meaning that the purchasing power of their salaries fifteen months after graduation has decreased. Our preliminary investigations, using NHS employment as a proxy for public sector employment in the health industry, have suggested that graduates working in the public sector are particularly likely to be experiencing a decline in real earnings. Further research – including the development of a more comprehensive means of identifying public sector employment in our data – could deepen our understanding of how the graduate experience may be changing under challenging economic circumstances.