Howard Davies: Why investment banks appeal to top graduates

Peter Lampl's Sutton Trust caused a stir with its report pointing out that the proportion of Britain's top journalists - editors, columnists and the rest - who were educated privately is on the rise; 54 of the current top 100 went to public school, up from 49 20 years ago. At university level, Oxbridge continues to dominate; two-fifths of the editors went to Oxford, including those of the FT, New Statesman and Private Eye, though the editor of this organ went to Preston Poly, now embedded in the University of Central Lancashire.

Why is this so? One reason may be the recruitment patterns of media organisations. Increasingly, they expect graduates to take unpaid internships if they wish to get their feet on the first rung of the ladder. That skews their recruitment towards the scions of better-off families, who can afford to work for nothing for a while. If they have any interest in addressing this imbalance, maybe media companies should review their hiring policies.

Among them, only the BBC appears near the top of the list of desirable employers for graduates, though Bloomberg has been climbing the rankings. Nationally, the top-ranked employer last year (in terms of application numbers) was PricewaterhouseCoopers. Ten years ago, it was Marks & Spencer. Nowadays, far fewer graduates think that Your M&S is a place for Them. Indeed finance, accounting and professional services are increasingly dominant at the top end of recruitment market; 43 per cent of "graduate" jobs offered by the members of the Association of Graduate Recruiters are in that category.

The surveys of graduate attitudes to employment produced by High Flyers and Universum offer an interesting perspective on employment patterns in Britain, and on the perceived status of different employers. They show just how quickly the labour market is changing. Only a few institutions, such as the BBC and the Foreign and Commonwealth Office, have held position near the top of the table over several decades. Students still aspire to be Our Man in Timbuktu, or the next Jeremy Paxman (Malvern College and Cambridge). Most manufacturers, by contrast, have tumbled down the league. Even for engineering graduates, the category "engineering/manufacturing" only ranks 10th in their list of desired openings.

There are surprises. It is encouraging to see that Teach First is increasingly seen as an attractive option. My old employer the Financial Services Authority is starting to look quite appealing, now that I have left.

But there is no doubt who the new ICIs and Unilevers are today: the investment banks. Even the management consultancies (apart from another of my alma maters, McKinsey) are in a lower division.

Perhaps the LSE's position, a stone's throw from the Goldman Sachs offices on Fleet Street, creates a peculiar micro-climate, but more than 1,000 of our graduating class applied there last year. Not quite all were successful, it is fair to say, but it is clear that Tom Wolfe's "masters of the universe" tag still sticks.

What of the new heroes of the financial markets, the hedge funds and the private equity houses? They are not household names, of course, and most plan to keep it that way. And they are individually small, so they do not figure in the national tables. But they are increasingly active in the market, looking for what we must now learn to call "oven-ready" graduates. Not plump and plucked, you understand - indeed lean and hungry is better - but they typically must offer high-level and targeted skills in financial techniques, which normally means an MSc at least, possibly even a PhD.

These new entrants are prepared to pay well. The LSE's average salary six months after graduating is £25,500, but the range is from zero to £150,000. And it is the small financial boutiques and consultancies that offer the best prospect of early riches.

Overall, this year, the market is buoyant. Graduate vacancies are up, and starting salaries too, by better than inflation. But we must remember that by no means all graduates begin in what we call "graduate jobs" - only a minority do so - and in the economy as a whole, unemployment is rising and vacancies falling. I suspect the UK labour market will soften further over the next couple of years, though the Bank of England expects job opportunities in financial services to increase.

Remember, though, that the UK is no longer the only market to consider. More than half of LSE graduates want to work elsewhere. This year, for the first time, there will be an LSE career fair in Beijing for our Chinese graduates. With the renminbi on the rise, maybe they will begin to push up our average starting salary.

The writer is the director of the LSE