One interesting finding (among many) from our recent report The Great British Brain Drain, is that the choice of where graduates move to after university is not driven entirely by money – at least, not in the immediate-term. Instead, the chance for further and faster career progression within a wider and more finely grained jobs market seems to be the deciding factor.
Graduate wages in London are the second highest in the country at a little over £25,000 per year (behind only Aberdeen, with its lucrative oil industry). And our research shows just how powerful the capital’s magnetic pull on graduates is, especially among high achievers. As the table below shows, 22 per cent of all graduate movers, 35 per cent of Russell Group leavers with a 2:1 or above, and 52 per cent of Oxbridge students relocate to the capital six months after graduation. This comes despite the city’s steep housing costs and exorbitant prices for a pint of beer.
With this in mind, you might expect that the £25,000 that new graduates earn on average in London represents a significant premium over wages in other cities. Surprisingly, however it isn’t. Our analysis shows that in many cities where pints are more reasonably priced and entire houses can be rented for the cost of a London flat-share – Hull, Blackburn and Stoke for example – graduate wages are not far off those in the capital. In fact, graduate wages in 37 out of our 63 UK cities are above £22,000, or 88 per cent of the London wage.
But London is to jobs markets what the Himalayas are to hills. Over 535,000 private firms are present in the city, 6.2 times the number in Manchester and 7.1 times the number in Birmingham. This quantity and density of firms offers nearly 4.5 million career opportunities, starting at the very bottom all the way to the very top of the some of the most productive and profitable firms on the planet. If you’ve just left university with a good degree, but aren’t entirely sure what you want to do, or if you know that the opportunities in your preferred career path are limited in other cities, then the attraction of London and the career progression and wage opportunities that come with it are extremely powerful.
Initial graduate salaries are broadly comparable across UK cities, starting in the foothills of £22-25,000. But the impact of the numerous peaks in London’s jobs market is to elevate earnings so that the average (of all workers, not just graduates) in the capital is above £35,000 per year. In contrast, only eight other UK cities exceed £30,000.
For firms, the sky-high rents in central London are a small price to pay to place themselves in the centre of this deep pool of skilled labour – built up over decades, and topped up by an annual influx of new graduates. Indeed, this access to a deep pool of labour is one element of the agglomeration that explains why high-knowledge firms cluster in expensive city centres. Among these skilled residents and newcomers, firms can also find better matches for the type of skills they need for often niche roles. This ‘matching’ is a second element of the agglomeration process which helps to explain firm location decisions (you can read more on this in our Trading Places report).
Of course, career progression is not the only factor that drives graduate choices about where they want to be once they’ve finished university. Being close to family, love for a particular region or city, quality and pace of life, working in a job that only exists in a few places – all these elements play important roles in these decisions. However, it does look like career progression is a critical factor for high-ranking students from the best UK universities.
So what lessons can local leaders take from these findings? Firstly, specific policies to encourage graduates to move or stay in a place (such as offering wage subsidies) will not be effective. Instead, city leaders need to focus primarily on strengthening their economies, by investing in transport, housing, innovation and enterprise. This will help to generate more graduate jobs and opportunities for career progression, making places more attractive for high-skilled workers.
They also need to prioritise developing more home-grown talent in their cities, by improving skills at all levels – from early years to GCSE attainment, further education and technical qualifications – which will be critical in increase the supply of home-grown high-skilled workers. You can read more about these policy implications in the report.