Entry level workers earning six-figure salaries

Some recent graduates are starting their careers with salaries that most workers will never earn, but what are the long-term implications?

Davis Nguyen specializes in helping college seniors launch careers in management consulting, a historically high-paying industry, with some of the biggest firms often offering undergraduates salaries approaching six figures even before the pandemic.

But in the current market, Nguyen's clients are doing particularly well. “They come back and say, 'I've got two great offers for you,'” explains the founder of Georgia, US-based My Consulting Offer. “One is for $120,000 (£91,630) and the other is for $140,000 (£106,900). In today's landscape, graduates can earn a lot more money than they could a few years ago.”

Management consulting is one of a growing number of fields where graduates are moving from the lecture hall to six-figure jobs, earning salaries that most people will never see. At major tech companies, entry-level software engineers can earn Such wages. Largest BankFirst-year analyst salaries rose nearly 30% in 2019, with some starting salaries reaching $110,000 (£83,979). At a major London law firm, some newly qualified lawyers are starting their careers with salaries of £107,500 ($141,115). Since the pandemic, it's becoming more common for “a 20-year-old to start earning $100,000,” Nguyen says.

Often these younger employees join companies where their colleagues started out at low wages and had to work hard for years to earn six-figure incomes. Such organizations would argue that it is a response to a market need. Jobs crisis This means that the competition for talent remains fierce, and employers must pay more if they want to attract top talent willing to work long hours.

But beyond bringing them in line with market standards, does paying huge salaries to graduates actually bring benefits such as encouraging longer hours and a stronger work ethic? Or does it create unintended consequences, both for high-income young people and for the workforce as a whole?

High salaries are expected

The salary of graduates is Steady increase Starting salaries for new employees in certain fields have risen dramatically in 2021, according to 2021 data from the National Association of Colleges and Employers, a US non-profit organisation. For example, the average wage for computer science majors has risen to $72,173 (£55,100); 7% increase in just one year.

Nicholas Bloom, a professor of economics at Stanford University, said demand for labor is rapidly outstripping supply, especially in the technology sector. Working more than 70 hours a week — Starting salaries have also been increased to attract top talent, so in most cases, college graduates are being handed six-figure salaries simply as a “hard recruiting tool” in the current labour market climate, adds Lou Dooley, HR knowledge adviser at the US-based Society for Human Resource Management (SHRM).

“Workers want to be viewed as valuable assets by their employers,” Dooley says. “Younger employees expect higher salaries, not necessarily because they demand them, but because they recognize the talent shortage and know their value.”

This means that some new recruits can secure huge salaries before they even leave their university dorms. “We frequently see companies double in size every 18 months, so graduate salaries are closely linked to the market,” Bloom adds.

In the tech industry, smaller start-ups are having to pay higher entry-level salaries to compete with larger companies: US employers pay an average starting salary of $110,027 (£84,000) to entry-level tech workers, according to Josh Brenner, CEO of New York City-based recruitment marketplace Hired.

Nguyen's college-aged clients often end up with jobs that pay much more than their first management consulting job. Nguyen thinks that's a good thing. “Today's six-figure starting salaries are trending higher than they have for decades,” he says. “Higher salaries give opportunities to people who otherwise wouldn't have them, and they don't take money away from people who started out at lower wages.”

Golden Handcuffs and Other Issues

But while a six-figure salary increase comes with many benefits, there can be some insidious consequences to these high payouts.

In some cases, these workers find themselves stuck in jobs they hate, especially if they depend on making a high salary for their livelihood — a phenomenon often referred to as “golden handcuffs.”

Nguyen says such wages can distort younger employees' perceptions of pay and discourage them from pursuing more meaningful careers: “Some may ultimately want to go into teaching or work for a nonprofit. Before, the salary reduction was about $50,000. Now it's closer to $100,000. That may be enough to dissuade them from making a career change.”

High salaries can also take a psychological toll on young employees. Nguyen says some of his college-aged clients feel anxious about starting out in the workforce with a high-paying job. “Some come from low-income families and wonder, 'What have I done to deserve to earn so much more than my parents do?' This can create imposter syndrome.”

Other employees within the same organization may also feel negatively affected when new hires are handed six-figure salaries without hesitation. For example, more experienced colleagues may resent their onboarding salaries, especially if they've been with the company for years but are still paid less than new graduates. “This can create wage disparity issues,” Dooley says.

Additionally, companies themselves may not necessarily get what they pay for: A high salary can effectively “buy” a candidate's willingness to work regular unpaid overtime, but it doesn't necessarily guarantee a better work ethic.

“Employers sometimes assume that employees will be highly motivated because they are highly compensated, but in reality they take this for granted,” says Tomás Chamorro, professor of business psychology at University College London. “A high salary might feel good when you first start working, but once you start working, you usually want more – so the effect of a high salary gets psychologically 'used up.'”

“Grab the job while you can”

Under current labor market conditions, six-figure starting salaries will likely remain the norm in some high-paying industries, but that trickle-down effect is unlikely to trickle down to entry-level workers in less elite sectors.

Paying six-figure salaries to super-privileged employees could further widen the wage gap rather than raising wages overall. “What we're seeing is clearly a widening of inequality and a continuing widening of the gap,” Bloom says. “Someone with a computer science degree might be able to make $250,000 by age 25, whereas someone who leaves school at 16 might only make $25,000. That's a 10-fold difference.”

Even if the labor market recovers in terms of supply and demand, this gap is likely to continue to widen. Bloom explains that wages can go up, but rarely go down. For example, Nguyen says that salaries in the management consulting industry have long endured the rigors of recessions. “We've seen wages withstand a lot of economic cycles. Companies restructure salaries for economic cycles, but they don't eliminate six-figure salaries.”

So, given the market’s resistance to ups and downs, six-figure graduate wages are likely to not only become more entrenched but even rise. And as the labour market normalizes and jobs become even scarcer, these salaries will become increasingly out of reach for most people.

“Six-figure starting salaries will continue to exist, but as growth slows, they will become harder to come by,” Bloom said. “These are jobs that the privileged few should grab while they can.”