A few months ago we wrote a piece that got a lot of attention from both clients and the media for this lead: “For the first time ever, recent college graduates are more likely unemployed than the base US population.” This new development struck a chord over the summer because the unemployment rate for recent college grads had been trending higher despite a strong labor market overall.
Given that the New York Fed just updated this data, here’s the current state of the labor market for recent college grads compared to the overall workforce over the prior two cycles (data goes back to 1990):
Unemployment trends (rates calculated as a 12-month moving average):
- Recent college graduates (aged 22 to 27) with a bachelor’s degree or higher. The unemployment rate here was as low as 2.58% in February 1998 and 3.33% in May 2007. This rate has continued to climb from its bottom of 3.62% in September 2018 for the current cycle to 4.0% as of September 2019 (latest available data).
- College graduates aged 22 to 65 with a bachelor’s degree or higher. The unemployment rate low for this group over the past two cycles was 1.73% in February 2001 and 2.08% in June 2007. It was 2.26% as of September, slightly higher than its current cycle low of 2.21% in October 2018.
- Young workers aged 22 to 27 without a bachelor’s degree. The unemployment rate for this demographic reached a low of 6.29% in October 2000 and 7.59% in December 2006. It currently stands at 6.51%, a new bottom for the current cycle.
- The unemployment rate of recent college graduates (4.0% as of September) has now been higher than all workers (3.65%) for six straight months. April 2019 marked the first time that happened in almost 3 decades.
Our two important takeaways from this data:
#1: While unemployment among all workers continues to fall, it has been rising for recent college grads despite a still robust US labor market. This is an important and worrisome trend to watch because it never dropped to prior cycle lows, even though those who have graduated from college typically get hired before less educated workers.
#2: On the plus side, unemployment among young workers without a bachelor’s degree continues to trend lower to levels last seen in the early 2000s, pulling the unemployment rate for all workers down with it. This makes sense as the stronger the economy, the more it brings less educated workers into the labor force. Additionally, the largest gains in job openings since the peak of the last cycle are predominantly for positions in industries that don’t necessarily require a college degree, such as health care, leisure and hospitality, and trade/transportation/utilities as opposed to information technology (i.e. computer coders).
Now, here are some notable underemployment trends from the NY Fed data:
- Defined as: “the share of graduates working in jobs that typically do not require a college degree. A job is classified as a college job if 50% or more of the people working in that job indicate that at least a bachelor’s degree is necessary; otherwise, the job is classified as a non-college job.”
- The underemployment rate for college graduates aged 22 to 65 with a bachelor’s degree or higher was 34.0% as of September 2019 for the fourth consecutive month and the bottom for the current cycle. The lows over the past two cycles was 31.6% in January 2001 and 33.7% in May 2009.
- The underemployment rate for recent college graduates aged 22 to 27 with a bachelor’s degree or higher was 41.3% as of September, slightly higher than the trough of 41.0% in June/July 2019 for the current cycle. The low over the past two cycles was 37.6% in May 2001 and 41.5% in February 2008.
The upshot: both recent and overall college graduates continue to have underemployment rates higher than in the early 2000s. As we noted in our last review of this data, here’s why that’s a problem:
- Median wage with a bachelor’s degree (aged 22 to 27): $44k (2018) vs. $45k (1990)
- Median wage with just a high school diploma (aged 22 to 27): $28k (2018) vs. $33k (1990)
Bottom line: at least the underemployment rate for recent college grads is relatively flat, but unemployment is increasing amid stagnant wages and record levels of student debt. That is not a winning recipe for the next recession, and highlights a weakening area in the US labor force that bears watching.