Some new graduates are beginning their careers on salaries most workers will never hit in their careers – but what are the long-term implications?
Davis Nguyen specialises in helping college seniors begin a career in management consulting. It’s an industry that historically pays well: even before the pandemic, some of the biggest firms offered undergraduates salaries that often approached the six-figure mark.
However, in the current market, Nguyen’s clients are doing particularly well. “They’ll come back and say ‘I have two great offers’,” explains the founder of My Consulting Offer, based in Georgia, US. “One is for $120,000 (£91,630), the other is for $140,000 (£106,900). Today’s climate means graduates can earn much more money than a few years ago.”
Management consulting is among the sectors in which graduates are increasingly walking straight from the lecture hall into six-figure roles – earning pay packets most people will never see in their lifetimes. In Big Tech, entry-level software engineers are often starting on such wages.
At the largest banking corporations, pay for first-year analysts has spiked nearly 30% – a $110,000 (£83,979) base salary, in some cases. At the biggest London law firms, some newly qualified solicitors begin their careers on a £107,500 salary ($141,115). Nguyen says “20-year-olds earning $100,000 from the get-go” has increasingly become the norm since the pandemic.
Often, these young employees are joining firms where colleagues began with lower pay, and had to work hard for years to earn six figures. Such organisations would argue it’s a response to market needs: the hiring crisis means the competition for talent remains fierce; if an employer wants the best candidates willing to put in long hours, they have to pay a high price for them.
However, beyond matching the market rate, does offering graduates huge pay packets actually bring benefits, like incentivising longer hours or boosting work ethic? Or can it create unintended consequences, for both the young high-earner as well as the wider workforce?
‘High pay is an expectation’
Wages for graduates have been steadily rising for years. According to 2021 data from US non-profit the National Association of Colleges and Employers, the starting salary for some entry-level workers in particular fields has spiked dramatically: for example, the average wage for a computer-science major has risen to $72,173 (£55,100) – a 7% hike in just one year.
Nicholas Bloom, professor of economics at Stanford University, says demand for labour is fast outstripping supply in sectors, particularly in tech. The financial industry – with jobs that often require 70-hour-plus workweeks – has also driven up starting salaries to hire the best candidates. So, in most cases, graduates are being handed six-figure salaries simply as a “blunt recruitment tool” amid the current labour market conditions, adds Rue Dooley, an HR knowledge advisor for the Society for Human Resource Management (SHRM), based in the US.
“Workers want to be thought of as a prized asset by their employer,” says Dooley. “Younger employees are saying high pay is an expectation not because they necessarily demand it, but because they’re aware of the talent shortage and they know their price.”
This means some entry-level workers can secure huge pay packets before they’ve even left the college dorm. “We’re regularly seeing firms double in size every 18 months, so graduate salaries are closely following the market,” adds Bloom.
In tech, smaller start-ups are also now having to pay entry-level employees higher salaries to match the more-established corporations. Josh Brenner, CEO of recruitment marketplace Hired, based in New York City, says US employers are paying first-year tech workers an average starting salary of $110,027 (£84,000).
Nguyen’s undergrad clients often land jobs with wages that dwarf the pay of his own first management consulting role. He believes it to be a good thing. “The six-figure starting salaries of today are an upward trend that stretches back decades,” he says. “High pay opens up opportunities for people who simply wouldn’t otherwise have had them, and it doesn’t take money away from those who started on lower pay.”
Golden handcuffs – and other problems
But while there are many upsides to the rise of six-figure salaries, these high compensation packets can come with insidious consequences.
In some cases, these workers may find themselves trapped in jobs they hate, especially if workers have built lifestyles around earning big pay-outs – a phenomenon often called ‘golden handcuffs’.
Nguyen says such wages can also skew young employees’ perception of pay, blocking them from pursuing more meaningful career paths. “Some may want to eventually move into teaching or work for a non-profit. Previously, the salary drop was around $50,000. Now, it’s closer to $100,000 – that could be enough to prevent someone from changing careers.”
Huge salaries can also weigh young employees with a psychological burden. Nguyen says some of his undergraduate clients can feel intimidated beginning their working lives in a job that pays a fortune. “There are some who come from low-income backgrounds and think, ‘What did I do to earn so much more than my parents ever made?’ It can cause imposter syndrome.”
Others in the same organisations can also feel negative effects when first-time employees are handed six-figure salaries without hesitation. For example, experienced colleagues may bristle at entry-level compensation packets – especially when they take home less money than a recent graduate, despite years-long tenure at the company. “It can create pay disparity issues,” says Dooley.
Additionally, companies themselves may not necessarily get what they pay for. While sky-high wages can effectively ‘buy’ a candidate’s willingness to regularly clock unpaid overtime, it doesn’t necessarily guarantee better work ethic.
“The risk is employers, in some cases, assume staff are going to be super motivated because of their high compensation, but in fact they take it for granted,” says Tomas Chamorro, professor of business psychology at University College London. “High wages may feel good when someone gets a job, but once they start, they typically want much more: the effects of good pay will be psychologically ‘spent’.”
‘Jobs to grab while you can’
With the labour market as it is, six-figure starting salaries will probably continue to be the norm in certain high-paying industries. But it’s unlikely there’ll be much of a trickle-down effect for entry-level workers in less elite sectors.
Rather than push wages up across the board, six-figure salaries for an ultra-privileged subset of employees may instead drive pay inequities deeper. “What we’re seeing is clearly increasing inequality and the gap keeps growing,” says Bloom. “If you have a computer-science degree you can be earning $250,000 by 25, while if you left school at 16 you might be earning $25,000 – a ten-fold difference.”
The gap will likely keep growing even if the labour market snaps back in terms of supply and demand. Bloom explains while wages often rise, they almost never fall. For example, Nguyen says salaries in management consulting have long endured the rigours of recession. “We’ve seen wages withstand so many economic cycles: firms plan for it and restructure pay, but they wouldn’t ever get rid of the six-figure salary.”
So, given their resistance to the ebb and flow of the market, six-figure graduate wages are not only likely to become more and more ingrained, they may also climb further. And if jobs become scarcer due to a labour-market normalisation, these pay packets will become increasingly out of reach for most people.
“Six-figure starting salaries are here to stay, and if growth cools it’ll mean they’ll be even harder to come by,” says Bloom. “These are jobs to grab while you can – if you can – for a privileged few.”
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