Great post, Nisha...I remember wrestling with just that question when I was looking for my first job in '99, when the job market was also very tight. I worked at NPOs all through college, and that was where I wanted to be...but then all the economic fears scared me, so I took a job at an ad agency - good money, "safe," and I hated every minute of it. The job required very long hours, and I missed doing work that I perceived as having value in the world.

And then I made the leap back to non-profit, magically landed a dream job, and never looked back. Sure, life was financially tight for a few years, but I had a great time, loved my job, moved to a city where there was good public transit and plenty of free entertainment. I wouldn't trade my experience for all the consulting money in the world. And at parties...no one is interested in what the consultants are doing, but I get plenty of questions about my work. There's more to a job than a paycheck.

This is a question a lot of people are probably grappling with, not just Gen Y. I think it depends on where you are living and what kind of work you are interested in doing. Businessweek just published an interesting piece that talked about which industries are strong, growing and hiring (healthcare, education).
There is a difference between settling and not pursuing your dreams. You can still continue to network into the job of your dreams while working the proverbial "survival job." The reality of having bills to pay, student debt or whatever hits Gen Y over the head like a hammer - a lot of us are just unsure of what to do. If pursuing your dreams involves going into a dying industry, you may want to re-evaluate how you fit into that puzzle.

Settling should not be in your vocabulary.
Now I am not saying that you shouldn't take that job that seems a bit dully and gray (compared to the green grass of your dream job). The situation is different for everyone. For example if you are married, with kids and your income provides the family with what they need, you need to be responsible to the people that depend on you and stick with that job while actively looking for something better.
If you are single, and are able to rough it out, then waiting around or taking jobs that are close to what you like but don't pay well, may be an option. It really depends! There is no magic bullet.

MY personal philosophy is this:
If you hate your job, really hate it, I mean this job is causing you mental and/or physical anguish, then you should not be there. really, get your stuff and go! Anything is better! There is no reason to sacrifice yourself :-)
If the job you have is kinda dull BUT has the opportunity to grow in some direction and if the economy is bad, stick with it and try to shine. This will give you knowledge, tools and credentials that you will need to land that dream job of yours.
If you are offered a job and you are not sure about, take it anyway. The benefit here is both monetary AND the ability to experiment. A lot of people have gone into industries unrelated to their education and really love it. Initially this may have seemed like settling to them, but they discovered a world they didn't knew existed. If it turns out that you don't like that world, OK - you can get another job, but at least you now will have more experience and the benefit on knowing whether a particular type of job is a good fit. It's been 5 years since I graduated and I can tell you that I what I do has little to do with my BA and I like it :-)

@Jenn -- glad you liked it. And it's really great to hear that you valued your experiences in the nonprofit world more than a paycheck!

@Raven -- I'm sure it's an issue to people of all ages, but I feel like it's more so for people who are just starting out in their careers. And, my dad sent me that same BusinessWeek article in an attempt to convince me to go into education or healthcare... :)

@jrandom -- Well, it's different when you're really young, just starting your career, and don't have the responsibilities of a family or kids. And I wouldn't underestimate the value of having fulfilling work. Life can't be much fun if you hate your job, even if it pays the bills...

@dr. pepper -- you're right that it will be different for everyone depending on their situation. And I like your philosophy!

@Mark F

Sorry to dump on you but "lose" is spelled with 1 "o." Loose is the change in your pocket, which you can then lose when it falls out.

I see this all the time and it drives me crazy!

Great post Nisha. Seeing that I"m still in the "I work for free" intern phase while bartending to pay rent - I'll have to get back to you on what I actually go through.

Right now, I am thankful that my restaurant is still busy so I can still keep a roof over my head. Once I graduate and look to get a job where I will utilize my degree, I imagine I'll be in a position of taking a large pay cut from what I make behind the bar right now. My first job in PR probably won't pay as well as slingin' drinks - but that's a sacrifice I'll have to make.

Best of luck, and as always, this post was a pleasure to read.

"I think the attitude you bring to your job can determine whether or not you like it. Just look at Pike Place Fish workers; they love going to work everyday to put on a show for passers by, even though they work 12-hour shifts and smell like fish as a result."

@Scott Lansing, the first sentence can be true, but it depends on the circumstances. The second...how do you know? For example, what's the turnover rate for that job? Maybe people are really enthusiastic about putting on the show, but it gets old quickly.

Passion about work is great, but it's not the only reason to work, and work isn't the only thing to be passionate about.

Sorry @KateNonymous. Here is the Web address I mentioned:

http://www.amazon.com/When-Fish-Fly-Energized-Workplace/dp/1401300618