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27 August 2012updated 07 Sep 2021 10:38am

City salaries rise, as banker-bashing has unintended consequences

Supply and demand rears its head.

By Alex Hern

The relationship between supply, demand and prices is a funny old thing. It’s one of the best-understood relationships in economics, and yet it’s still capable of surprising people.

If price is fixed, then there is a real risk of supply and demand failing to meet equilibrium. We know this, yet we still chase ideas like rent control. Similarly, if supply is artificially constrained, prices are liable to spiral off into the realms of unaffordability. Just ask anyone trying to buy a family house in Silicon Valley.

And if you are trying to lower prices for something, the absolute worst thing to do is attack supply without affecting demand. Which is why campaigners against banker’s salaries must be kicking themselves:

Investment banks have been forced to raise starting salaries this summer to attract top graduates amid a student backlash against banking scandals.

Salaries for new recruits have been raised to around between £45,000 and £50,000 a year at the top investment banks – a 5pc rise from last year in reflection of the “reputational issues” around City firms.

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The rise is on top of a big jump in starting salaries at the banks last year as the “social stigma” of working for a bank rises again.

If you spend four years painting banking as a career which only evil money-grabbers want to enter, then a lot of people who would otherwise be happy to work there may need extra persuasion. And while the banks themselves may be having a tough time when it comes to PR, they certainly haven’t lost their ability to throw enormous sums of money around. So it’s trebles all round on the grad schemes this year – and plenty more in the future.

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