The Class of 2018: Welcome to the Real World

If it wasn’t on their reading list, many graduates this year might have at least had Great Expectations on their minds. Theirs was the class entering an economy with the United States’ lowest unemployment rate in eight years, pumping out some 200,000 jobs a month according to the latest figures. But for now, at least, the high hopes haven’t been matched with high salaries. 

According a new study by Korn Ferry, US grads who have a bachelor’s degree can expect to earn an average of $50,390 annually in their first jobs. That’s 2.8% ahead of last year, but virtually flat when accounting for inflation. The good news remains the same as in other years: both demand and pay for STEM work for grads are soaring. 

Grads lining up to be software engineers can expect to pull in more than $67,000 a year on average, with scientists/researchers and engineers not too far behind in the comfortable $60,000-plus range, according to the study, which analyzed salaries of 310,000 entry-level positions from nearly 1,000 US organizations. But the numbers drop off sharply after that: of 10 popular jobs highlighted, half command less than $50,000, including accountants and graphic designers. Two roles—claims examiner and customer service rep—command less than $40,000.

Such figures may be a reality splash for grads, with the average student leaving college with more than $37,000 in loan debt. But the increased starting salaries are actually fairly close to what more experienced workers are seeing this year, as companies try to stick to a more cautious approach on compensation. 

According to Tom McMullen, a senior client partner in Korn Ferry’s North America Total Rewards practice, company leaders have learned from the past: they know that once they raise compensation they can’t easily take it back. That’s why in the years since the Great Recession, organizations have shown more flexibility with bonuses and incentives than with base salary. 

“Over the last 10 years, when times have been really challenging, there has been more focus on variable pay programs,” says McMullen. “It’s a balancing act. As an employer, you need to pay enough in fixed costs (base salary and benefits) to get candidates in. Once you have them in the door, the mentality is often ‘we’re willing to pay for performance, but only if we get that performance.’”

Indeed, many companies are limited in how much they can raise base salaries for anyone in their ranks, especially with the spotlight on pay equity. Experts say that with everyone from entry-level workers to top execs seeing about a 3% pay increase, an outsized increase for new college grads would shift the total pay pie. “If you raise that lowest wage in the structure it has a ripple effect for everyone else,” says Maryam Morse, a Korn Ferry senior client partner who heads up the North America Consumer practice. 

As for the STEM pay, “not all grads are created equal,” says McMullen. “We can’t deliver enough software developers and science researchers.” Not only are STEM grads in demand, but their options are more diverse than ever. “It used to be there were just some companies moving in that direction, as we saw when retail moved to e-commerce. But now this kind of shift is pervasive in every industry,” says Morse.

Whatever the role, experts say the best advice for grads is to pay attention to the cost of living and density of job opportunities when considering their compensation. For example, according to Korn Ferry, a new grad who takes a job as a software developer in Philadelphia will earn $72,279 on average—a high salary for a place with a much lower cost of living than a city such as New York. 

It may also be wise for college grads to consider the training and development opportunities at each company. “Not all companies are created equal in terms of how well they do with young grads. Ask yourself, what’s the perspective on training and development? Take a look at the long game versus just ‘I have an offer in my hand and I’m really excited about it,’” says Morse.

Average Annual Salaries, Class of 2018

Source: Korn Ferry