Are markets efficient?
July 11, 2007Thanks for visiting! If you like what you're reading, you may want to subscribe to my RSS feed.
When you are interested in the stock market, one phrase you come across often is “Markets are efficient” - meaning that in most cases and most of the time (there are exceptions… think 2001 Internet hype!) the market rates accurately reflect underlying value. People who are advocating this feature will therefore tell you not to try to time the market (or even beat it) because you will fail in the long run. You might get lucky this year, but over a 10 year period you will be almost certain to underperform the market.
With this information in mind, I stumbled across the following headline on the BBC website:
The article quotes a recent survey undertaken by the Association of Graduate Recruiters which reveals that starting salaries in London fell by 5%. East Anglia is even worse off with a fall of 14 percent!
Now, if you have been following the news in the last couple of months, shouldn’t you immediately think that’s odd? Inflation well above target, interest rates keep rising to tackle the problem but there doesn’t seem to be an end in sight (yet). Living costs in London are as high as (almost) nowhere else in Europe and the extraordinary house price inflation in the UK should be news to no one. Coupled with the high interest rates, mortgages are on the brink of becoming a luxury.
So can anyone explain to me why salaries are falling?
Glad you asked, Kirsten. It's very simple. The AGR survey doesn't
Charlie B | July 12, 2007 | 1:55 pmGlad you asked, Kirsten.
It’s very simple. The AGR survey doesn’t actually measure graduate salaries. It looks at what a small sample of high-paying graduate employers either have paid, or expect to pay their new graduates. It depends very heavily on which employers of their sample expect to be recruiting a lot of people in a particular year, amongst other things.
So you're saying the starting salaries go down if employers
Kirsten | July 13, 2007 | 4:00 amSo you’re saying the starting salaries go down if employers look to recruit more people?
No, just that the AGR survey isn't representative of graduate
Charlie B | July 13, 2007 | 4:52 pmNo, just that the AGR survey isn’t representative of graduate salaries. The sample changes from year to year. It doesn’t remain constant - this year’s survey doesn’t sample the same employers in the same locations as last year.
It’s not a bad survey if what you’re after is an idea of what some of the big, London-based blue-chip employers are thinking of paying new recruits, but your delving into dangerous territory if you want to use it to compare salaries year-on-year. The press release does it, of course, because that’s what the media want to print.
The survey is also notoriously bad at the public sector, the arts, the media, science, IT and engineering salaries, because it doesn’t sample many employers from those fields.
The much more representative Destinations of Leavers from Higher Education Survey, which samples *all* graduates from UK universities (you’ll have got the form in January if you left last year - hope you filled it in!) was also out this week, but went largely *unreported* - because the results were a bit boring - graduate unemployment unchanged (and quite low), median salaries have gone up a little bit but not much, HE sector not in turmoil or meltdown. Haven’t got the full results yet but I’d imagine average graduate starting salaries will be a little bit north of what they were in 2006 (which was around £17.5k) - probably pushing £18k.
Sorry for the length of the post, but it’s worth explaining what’s really going on because so few people actually get to find out.
Please don't apologise for the lengthy comment - it was
Kirsten | July 14, 2007 | 12:45 amPlease don’t apologise for the lengthy comment - it was very insightful!