Fresh Graduates: Should You Accept a Lower Starting Salary or Wait for The Perfect Job?
Class of 2020: Yikes
“Fresh graduates need not worry if they accept a low salary at their first job, it will have a dampening effect on their pay throughout the rest of their careers.”
A recent TodayOnline article might have caused a bit of a disagreement in the online community by stating that:
- Low starting salary will not affect your earning power in future
- Applicants need not declare their last-drawn salaries and that employers cannot insist that they do so
While many have caught on the wave voiced their opinion and disagree with the above statement, little has offered any proper advice on the way forward.
Congrats on adding more negativity to the already worrying job market.
Now what?
Keeping It Real
Here are some cold hard facts that we need to recognise.
- Most companies are still pegging your current draw to your last drawn.
Changing the mindset and HR policies of companies can take time, especially when this process can help them minimise cost. - The job market is going to take some time to recover. It may even take years.
Start with a Lower Starting Salary vs Waiting for the Market to Recover
With the above assumptions in mind, we assume most of the fresh graduates to be at a cross-road right now.
Should they
- take up a job at a lower starting salary
- or wait for the job market to recover and embark on a higher starting salary
Lets lay out some assumptions before we go on with the necessary calculation to aid in the process of decision making:
- Salary of the job at $2,800 per month
- Median fresh graduate salary: $3,600 per month
- Median annualised increment to nominal wage is at 4.5%
- The labour market will take about one year to recover, and the salary of fresh graduates returns to the “norm” immediately.
- 0% interest rate on everything earned.
We have two fresh graduates, one taking up a lower salary and start work about a year earlier than the other.
Here’s the most basic assumption on how the scenario will play out.
| Graduate A | Graduate B | |
|---|---|---|
| Year 1 | $33,600 ($2,800 per month) | $0 |
| Year 2 | $35,112 ($2,926 per month) | $43,200 ($3,600 per month) |
| Year 3 | $36,692.04 ($3,057.67 per month) | $45,144 ($3,762 per month) |
| Year 4 | $38,343.24 ($3,195.27 per month) | $47,175.48 ($3,931.29 per month) |
| Year 5 | $40,068.60 ($3,339.05 per month) | $49,298.40 ($4,108.20 per month) |
| Year 6 | $41,871.72 ($3,489.31 per month) | $51,516.84 ($4,293.07 per month) |
| Year 7 | $43,755.96 ($3,646.33. per month) | $53,835 ($4,486.25 per month) |
| Year 8 | $45,724.92 ($3,810.41 per month) | $56,257.68 ($4,688.14 per month) |
| Year 9 | $47,782.56 ($3,981.88 per month) | $58,789.20 ($4,899.10 per month) |
| Year 10 | $49,932.84 ($4,161.07 per month) | $61,434.72 ($5,119.56 per month) |
| Total | $412,883.88 | $466,651.30 |
By adding up their total income earned over 10 years, the overall income of Graduate B who waits for the job market to recover is at $466,651.30.
This is $53,767.42 higher than Graduate A who started his career at a lower starting salary.
The Math looks great, but is it necessarily true?
Allow us to provide you with an alternative point of view.
Relevant Experience Matters
While the above calculation paints a bleak outlook on graduates starting their career with a lower starting salary, do take into account the years of experience at each stage of their journey.
Starting your career early has its perks too.
The average time for promotion in Singapore is 3.8 years (46 months).
That one-year headstart, allow you to work towards that promotion earlier. From there, it will be up to your salary negotiating skills.
On top of that, having a one-year headstart in terms of experience puts you in a better position to negotiate your salary earlier.
The Intangibles
On top of work experience, entering the workforce early allows you to start forming your network early.
The connections you build can either help contribute to your growth in knowledge and experience. It can also be very valuable when it comes to getting a recommendation for your next job.
Cost of Living
Do note that we are all in this crisis together. With Singapore facing slower growth, MAS has lowered its 2020 forecast range for both core inflation to minus 1 per cent to 0 per cent.
Do note that the core inflation excludes costs of accommodation and private road transport and overall consumer price inflation.
Overall consumer prices will also be lower making the cost of living slightly more manageable.
The Seedly Money Framework – Your Money, Your Choice
If you were to refer to the Seedly Money Framework, you noticed that your income is just one of the verticals to winning your personal finance.
We probably heard of people who managed to retire early despite earning a lower salary. We have also heard stories of high earners landing themselves in huge debt.
Do not let the perceived “setback” in lower starting salary demoralise you. Personal finance is a lifelong journey and it is important that we make smarter financial decisions on our spendings, savings, insurance and investments.
Further Reading: Change in Median Gross Monthly Income From Work for Singaporeans
For full-time employed Singapore residents, here’s the change in median gross monthly income from work (including Employer CPF Contributions):
| Annualised Change (% per annum) | |||
|---|---|---|---|
| Mid-Year | Year 2009 - 2019 | Year 2009 - 2014 | Year 2014 - 2019 |
| Nominal | 4.5 | 5.2 | 3.9 |
| Real | 2.9 | 1.9 | 3.8 |
Source: mom.gov.sg
From the year 2009 to 2019, the median annualised change to nominal wage for employed Singaporeans is at 4.5%.
How Bad is Singapore’s Job market Right Now?
To draw a comparison, here’s the unemployment rate for some of the crisis we have been through:
| Economic Crisis | Unemployment Rate |
|---|---|
| Global Financial Crisis (third quarter of 2009) | 3.3% |
| Severe Acute Respiratory Syndrome (Sars) Outbreak (third quarter of 2003) | 4.8% |
| COVID-19 Outbreak | Predicted to be 3.5% |
With reference to the previous crisis, here’s how long it took for Singapore’s labour market to recover:
| Financial Crisis | Signs of Recovery | How Long It Took? |
|---|---|---|
| Great Financial Crisis | September 2010, where unemployment rate stood at 1.8% | About 1 year |
| Sars Outbreak | As Sars was mainly limited to Asian cities, the recovery for Sars outbreak was faster. Singapore's growth bounced back to 9% cent in 2004. | About 1 year |
Source: guidemesingapore.com and Straits Times
While Singapore has been rather effective in recovering from the various financial crisis, COVID-19’s will likely have a greater impact as compared to the other financial crisis.
This means the possibility of a longer time required for the labour market to fully recover.
The Only Way is Up
With little insight on when we can recover from this crisis, it is important to
- Get hold of whatever income possible
- Use this time to upgrade yourself and stay relevant
- Gain the necessary experience
This is the best time to fully equip yourself and put yourself in the perfect position when the job market recovers.
Instead of insisting and waiting for that perfect job with the salary that you expect, understand that everyone is going through the same crisis. This is a different type of situation and only the resilience ones will get through it stronger.
