Recent College Grads: Still Behind In US Labor Markets

We love when our readers send us questions; it gives us an idea to write about while also enabling us to provide content we know you want. In that vein, here’s one recent client inquiry: is young graduate unemployment better or worse than the historical average for this part of the cycle? As the resident millennial, I took this one.

Fortunately, the New York Fed has a very useful web feature on unemployment rates for college graduates and other groups back to 1990. We’ll provide a link to it at the end of this section. Here’s where various cohorts stand versus the prior 2 cycles (note that these rates are calculated as a 12-month moving average):

  • 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’s slightly higher at 2.22% as of March 2019, but basically at the bottom for the current cycle.
  • 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. It was at 3.68% in March 2019, essentially in line with its bottom of 3.62% in September 2018 for the current cycle.
  • 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 6.81%, marking the bottom for the current cycle.
  • The difference in unemployment rates between recent grads and all working-age college grads was 1.46% (recent grads experiencing higher unemployment) as of March compared to this cycle’s low of 1.30% in December 2012. As for the prior two cycles, the spread hit lows of 0.55% in February 1998 and 1.18% in January 2004.

So to answer our client’s question: the unemployment rate for recent graduates is still higher than the lows of the prior two cycles both in absolute terms and relative to all college educated workers. It could fall further, however, if the economy continues to strengthen. Conversely, the unemployment rate of young workers without a college degree is lower than the last cycle and moving closer to the bottom in the early 2000s. This is great news. There’s been more open positions than those looking for work for several months. We continue to believe that employers will need to pull more non-college educated Americans into the workforce to fill these jobs.

Moreover, the NY Fed also has a section for underemployment rates for college grads. Here’s a description and breakdown of the historical data:

  • “The underemployment rate is 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 percent 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 34.1% as of March 2019; that’s essentially in line with the low of 34.0% in December 2018 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 March, marking a trough for the current cycle. The low over the past two cycles was 37.6% in May 2001 and 41.5% in February 2008.

These underemployment rates give us more concern than the unemployment rates for both cohorts. College graduates overall and especially recent graduates still have underemployment rates higher than in the early 2000s. That’s particularly troublesome for recent graduates who are trying to pay off record levels of student debt. The New York Fed shows the median wage for recent college graduates (aged 22 to 27) was $44,000 last year versus $28,000 for those of the same age with just a high school diploma. The peak for the former was also $47,467 in 2002, while the high for the latter was $32,672 in 1990.

Bottom line: unemployment rates for college graduates show a robust labor market, but the unemployment and underemployment rates particularly for recent grads have room for improvement. Why? Related NY Fed work on the topic says it could be due to lingering effects of the Great Recession, after which is took longer for recent grads to get hired and build skills to transition to more demanding and better paying jobs.


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