The earnings of recent English graduates have deteriorated so rapidly since the financial crisis that the latest class is earning 12 per cent less than their pre-crash counterparts at the same stage in their careers. They also owe about 60 per cent more in student debt.

As Britain starts to emerge from the downturn, a Financial Times analysis of student loan data exposes the damage done to a generation of graduates, for whom a degree has all but ceased to be a golden ticket to a decent job. Tuition fees in England almost tripled last year to a maximum £9,000 a year.

These are the young people to whom the country will turn over the next 20 years to fund the retirement of the “baby boomer” generation. Britain’s ageing population is forecast to put the country’s public finances under increasing strain.

Each cohort of graduates since the financial crisis is earning less than the one before. New graduates who earned £15,000 or more in 2011-12 – enough to start repaying their loans – were paid on average 12 per cent less in real terms than graduates at the same stage of their careers in 2007-08.

This real terms fall is three times as deep as the decline in average pay for all full-time workers over the same period.

The data come from the Student Loans Company, which is owned by the government, and cover the repayments of all graduates in England who took out loans. Scottish universities are free for Scottish students.

People repaying their loans between 2005-6 and 2011-12 paid 9 per cent of their earnings above £15,000. This makes the data a good rough guide to the pay of those who have done relatively well in the labour market, with some caveats.

They do not capture the 28 per cent of new graduates in 2011-12 who were not earning enough to start repaying their loans, or the 17 per cent who were not working at all.

Young people have been affected disproportionately by the financial crisis across the developed world. Graduates are in a better position than those without degrees, but the economic downturn has dealt a heavy blow to their early careers.

As companies have cut back on hiring, graduates have found it much harder to land degree-level jobs. Last year, the Office for National Statistics said 36 per cent of recent graduates were employed in lower skilled jobs, up from 27 per cent in 2001. The ONS will update these figures on Tuesday in its latest annual report on graduates, which should give an indication of whether the recent recovery has started to improve the picture.

Young people without degrees have had an even harder time, especially those who left school at 16 without at least five good grades.

Now the economy is starting to recover, the big question for graduates is whether they can dig themselves out of the hole they are in. According to Till Marco von Wachter, an economics professor at the University of California Los Angeles, it usually takes 10 to 15 years for the average person to recover from graduating into a big recession.

“The good news is there is catch-up, the bad news is it’s not related to the economic cycle. It takes longer – much longer,” he said.

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Supply of graduates far outstrips demand

It is the end of the day at The London Graduate Fair and a procession of young people are heading for the exit. They carry identical red bags emblazoned with the words, “How to get hired”, and have their names and a bar code pinned to their chests. The bar codes allow employers at the fair to scan their personal details and filter them into certain categories: “Send more information after the fair,” for example, or “Invite for interview”.

Rob Gill, who has been manning the Jaguar Land Rover stand, looks worn out. “There’s just this growing pool of grads,” he says. “They all ask: ‘What are you looking for? What can I do to stand out?’ No one asks: ‘What’s the salary?’”

Job fairs like this one make it clear why graduate pay has dropped since the crisis, as analysis by the Financial Times has revealed. While employers complain of skill shortages in certain areas such as engineering, the overall supply of graduates is far outstripping demand for them.

The bottom graduates never recover and stay at these lower firms forever

The number of graduate vacancies on offer this year from the top 100 employers was the highest since 2008 but still 9 per cent lower than before the crisis, according to High Fliers Research, which monitors graduate recruitment. The median starting salary for these jobs remained unchanged in cash terms for an unprecedented fourth year.

Corporate Britain has become risk averse since the crash, which has made it harder for graduates to find a way in. Real business investment – already weak in the boom years – fell by a quarter during the recession and another tenth after it ended. And while company accountants may not class young people as investments, managers certainly see them that way. Increasingly, the only graduates they are willing to take on are the ones they already know. More than a third of the jobs offered by the top employers this year went to graduates who had already worked at that company on internships or placements.

“It used to be you went to university and you got a good job; that was the deal, wasn’t it? But it’s not quite like that any more,” says Katerina Rudiger, head of skills and policy campaigns at the Chartered Institute of Personnel and Development.

With fewer graduate jobs on offer, there has been a rise in what economists call “cyclical downgrading”. In other words, graduates are taking jobs that people without degrees could do. Not only does this push down graduates’ average pay, it also pushes young people without degrees further down the labour market’s rungs – or off the ladder altogether. Youth unemployment in the UK has climbed from 12 per cent to almost 20 per cent since 2007.

Now that Britain’s economic glass is “half full”, as the Bank of England governor said last week, will young people clamber back up to where they would have been without the financial crisis?

Craig Holmes, a researcher at Oxford university’s Centre on Skills, Knowledge and Organisational Performance, warns it will not be that easy. “Even if we get back to similar employment levels, those higher-level employers are not going to suddenly double their intake for a particular year just to accommodate for those they missed the first time,” he says.

Mr Von Wachter has studied what happened to graduates in the 1980s and 1990s in Canada. This data suggest it can take 10 to 15 years for the average person’s pay to recover after such a bad start, but there is huge variation depending on what and where they studied.

Graduates with good degrees from decent universities tend to catch up within three to four years by switching frequently from employer to employer to increase their salaries. But graduates with humanities degrees from less prestigious universities find themselves stuck in those initial low-paid jobs at smaller companies. “The bottom graduates never recover and stay at these lower firms forever,” he says.

Japan sets the most worrying precedent. Many of the young people who were locked out of corporate Japan when its economy crashed in the 1990s are still trapped in part-time, precarious work.

Whether they know all this or not, the graduates at The London Graduate Fair are well aware their best chance is to get into decent jobs as quickly as possible. Some are even willing to pay for the opportunity.

As most employers at the fair roll up their posters and take down their stalls, some graduates still hover around the City Trading and Investment stand, which has a glossy photo backdrop of Canary Wharf at night.

The company is offering internships in trading and portfolio management. After some classroom training in a Canary Wharf office, interns will log on to a “virtual trading room” from home and receive more lessons remotely, explains Calum Watt, who founded the company and plans to run its first course in January. The best interns will be offered trading jobs, with “remuneration based on the profits they make”.

The 10-week course costs £695 per month, according to the company’s website. “All my brochures have gone but if I can just scan your pass I’ll send you the information,” Mr Watt explains to an anxious young man in a suit. “We’ll be emailing you out a discount code.”

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Letter in response to this article:

Graduates and a fundamental law / From Ms Sarah Ferguson