Britain's soaring minimum wage takes the shine off university degrees

Yahoo

18-05-2025

Picture a job paying the minimum wage and you'll most likely picture a cleaner, refuse collector or manual labourer. What you probably wouldn't picture is a job in technology, accounting or the legal profession.
Yet because of the soaring minimum wage and a weak economy, many entry-level roles in white-collar professions now pay the minimum wage, or just above.
The National Living Wage in the UK has risen rapidly in recent years and is now one of the highest in the world. As average wages across the economy have struggled, one group is starting to take note – graduates.
'I just graduated with a Stem [science, technology, engineering or maths] degree from a Russell Group university, but the best I have been able to get is a £25k role as a research assistant. Feel like my last four years have been a waste,' complains one 23-year-old on a forum on Reddit, where Britain's sluggish wages are a recurring topic.
They are hardly alone. One in four jobs advertised to graduates on jobs platform Indeed pay minimum wage or only scarcely higher.
Big rises in the minimum wage – most recently by 6.7pc to £12.21 in April – means someone working 40 hours a week now makes around £25,500. This is a real-terms jump of 11pc in four years, a period when the typical worker's pay has risen just 0.8pc after inflation.
'It's an incredibly tough market for the graduates at the minute,' says Jack Kennedy, a senior economist at Indeed, a jobs search engine.
'Hiring appetite for less experienced entry-level positions has been first on the chopping block. Employers are responding to those market forces [in terms of pay].'
Tech, accounting and legal are the professions where pay growth for graduates has been 'particularly underwhelming', Kennedy says, questioning whether AI is also to blame. Graduates in such professions are often tasked with sifting through material, making summaries and analyses. Now chatbots can do this far more efficiently.
But the shrinking gap between the minimum wage and starting salaries for graduates has been decades in the making, according to Nye Cominetti, at the Resolution Foundation, a think tank.
'Overall wage growth in the UK economy has been poor. We're basically at the same wage level for average earners now in real terms that we were back in the time of the financial crisis. But in the same period, minimum wage has gone up very substantially,' he says.
Twenty years ago, the median graduate made 2.5 times more than worker on the minimum wage. By 2023, this premium had shrunk to 1.6 times. The National Living Wage has made two inflation-busting jumps since, meaning the gap may be even smaller now.
'As a direct result of policy, the gap between bottom earners and middle earners has fallen, and that has also applied to graduate salaries,' Cominetti says. 'There is actually now the risk of minimum wage under payment for some of those jobs, which was very unlikely 10 years ago when the gap between the minimum wage and entry level graduate jobs was much bigger.'
Rachel Reeves's tax raid on employers is likely to hit graduate wages further, warns Stephen Isherwood, joint chief executive of the Institute of Student Employers.
'If you've got a limited pay budget and you've got something like National Insurance increases, that is going to limit how much money is in the pay pot to to give to new entrants to an organisation,' he says.
On top of facing low salaries, there is also the hit from repaying student loans. Graduates entering the job market this summer will on average have £45,600 in debt. Paying this off effectively means facing a much higher marginal tax rate for decades.
A graduate paying back their student loan earning up to £50,271 is taxed at 37pc, compared with 28pc for someone who did not attend university. If this person starts to do really well, making more than £100,000 and decides to settle down and have children, they are rewarded with a marginal tax rate of 71pc – compared with 62pc for peers.
What's more, those graduating next year will start paying back their student loans as soon as their earnings surpass £25,000, leaving them with less left after tax if they take a minimum wage job than those without a degree.
All of the forces are making the gains from a degree appear less impressive than in the past. The concern is that by eroding the value of a degree, it will kill ambition among the young. Why go to university when you'll be better off in the short run taking a minimum wage job?
Young people outside London have been the most afflicted by degrees losing value, according to Xiaowei Xu, from the Institute for Fiscal Studies.
'The increase in professional services jobs, banking and so on soaked up a lot of the demand for graduates in London. We haven't seen expansion of those sectors outside London to anything near the same degree,' she says.
'At the same time, the share of people getting degrees has increased pretty much evenly across the country. That seems to have led to lots of graduates not actually working at graduate jobs outside London.'
Melissa Hewitt, at Stem recruiter Morson in Manchester, says businesses are struggling to keep pace with the big jumps in the minimum wage for entry roles – but grads should see it as a route to higher pay further down the line.
'It is reflective of the market. If it's a highly competitive market and it's a role that will give you structure and experience, it's weighing up how much you can afford to be paid,' she says.
Hewitt and other experts emphasise that what matters most is not the starting salary but how fast and far it can grow. There, graduates are still in better stead than many of their peers who are swerving higher education.
But for Britain's highly taxed, underpaid and underemployed graduates trying to find their feet in an employers' job market, there is no wonder degrees are losing their shine.
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