New grads entering the job market have come to expect that during touch economic times — like the present — they may have to settle for a lower salary to get a job. But that flexibility may result in income damage that could take nearly 20 years to overcome, according to new research.
A Depressing Discovery
By equating salaries for new hires to the unemployment rate, a Yale professor calculates that students who graduate during a downturn earn 6-8% less in their first year for each percentage-point increase in the unemployment rate.
That means a 1982 graduate entering the job market when unemployment stood at 10.8% earned, on average, 23% less than a 1981 grad who entered the job market when the jobless rate was 7.5%, according to the blog Daily Finance.
The research, conducted by Lisa Kahn, assistant professor of economics at the Yale School of Management, suggests that the disadvantage may take years to overcome. For example, new hires during a recession may be more reluctant to look for another job, which could bring a salary bump.
“Over 17 years after college those groups have a $100,000 difference in earnings,” Kahn said.
What about the Class of 2009?
The National Association of Colleges and Employers (NACE) just released a list of the top jobs (with salaries) for the Class of 2009. The big news was the emergence of teaching in the top spot.
The top five positions and starting salaries are: teaching ($35,496), management trainee ($41,353), financial/treasury analysis ($52,043), consulting ($56,472), sales ($41,577).
2009 marked the first time in several years that the public sector landed the top spot. And public sector jobs generally pay less than those in the private sector, as NACE’s executive director Marilyn Mackes said.
No surprise: the NACE press release also noted that the average starting salary for new college graduates fell this year. The average starting salary offer for a 2009 bachelor’s degree recipient is $48,633. That comes in at 1.2% less than the $49,224 average offer extended to members of the Class of 2008.
A Broader Perspective
Does this mean new grads are financially screwed for the next decade compared to their peers who are a year older? Maybe — if you consider Kahn’s research in a vacuum. But plenty of other factors play into the mix of anyone’s career and salary trajectories.
The Yale salary-comparison research offers a valuable piece of data, but — like the national unemployment rate — it’s not an absolute for every worker.
Kahn herself offers a great piece of advice in the Daily Finance interview: “Don’t accept the status quo.”
For more helpful resources on this salary issue, see these articles:
- Will the Recession Deflate Your Income Forever?
- 4 Types of Pay Cuts, and What You Can Do About Them
- Do You Dare Ask for a Raise in This Economy?