Cuts in public spending could spark a "brain drain", with graduate retention being hit in cities outside the South East, a new report has warned.
The Work Foundation said graduate unemployment, already at 20%, was likely to get worse in the short term as a direct result of the Government's austerity measures.
In the longer term this could result in a "flight" of young graduates from areas such as the North of England which are dependent on the public sector for jobs, it was warned.
The past decade has seen big increases in the number of young graduates in cities such as Leeds, Sheffield and Rotherham, driven by public sector expansion, said the report.
Young graduates in the North and the Midlands were now disproportionately employed in the public sector, which had "serious implications" for public sector cuts being brought in by the Government.
Jonathan Wright, author of the report, said: "The coalition must demonstrate its commitment to rebalancing the economy. High-skilled graduates are vital for urban innovation and growth. With the scrapping of schemes such as the Future Jobs Fund, the coalition must now focus on developing strategies aimed at integrating the highly skilled into local private sector jobs.
"Earlier research has indicated that the growth potential of places in the South East far outweighs those in the North. The flight of young graduates due to public sector job losses in the regions would exacerbate this trend, disproportionately hindering economic recovery in the North and Midlands.
"This must be recognised and taken into account as the coalition implements its cuts agenda over the next four years."