College Degrees Losing Their Value

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College Degrees Losing Their Value

Fears about the latest crisis delaying economic progress for millions of younger Americans continue to grow, but how is this cohort actually doing? Today we have an update on their current unemployment situation using new data from the New York Federal Reserve. Here’s how young workers with and without a college degree are faring (rates calculated as a 12-month moving average, data goes back to 1990):

#1: Unemployment rate for recent college graduates (aged 22 to 27) with a bachelor’s degree or higher:

  • Their unemployment rate dropped to 9.1% in September from an all-time high of 13.2% in June. The unemployment rate of recent grads is 1.2 points higher than the base population (7.9%).
  • The prior-cycle peaks were all lower than 2020: 7.9% in December 2010, 5.3% in February 2002 and 5.1% in November 1992.
  • This rate was at 3.8% in January 2020 versus a record low of 2.1% in November 1997.

By comparison, here is the labor market data for all college graduates up to age 65 with a bachelor’s degree or higher:

  • Their unemployment rate fell to 5.3% in September from a record high of 7.8% in June. The unemployment rate of college educated workers is 2.6 points lower than the base population (7.9%).
  • The prior-cycle tops were 5.1% in February 2010, 3.3% in October 2003, and 3.6% in November 1992.
  • This rate was at 2.1% in January 2020 compared to a record low of 1.7% in December 2000.

Our takeaway: the difference between the unemployment rate of recent college graduates and overall college graduates was the widest it’s ever been at 5.4 points in June 2020, as shown in the chart below. Even though it has since fallen to 3.8 points as of September, that’s still a full point higher than the peak after the Financial Crisis (2.8 points in December 2010). Bottom line: college graduates newest to the labor force are faring worse than recent grads during the Great Recession and have also seen greater joblessness than those with a college education and more work experience during the latest recession.

#2: Unemployment rate for young workers aged 22 to 27 without a bachelor’s degree:

  • Their unemployment rate dropped to 14.4% in September from a record high of 21.7% in June 2020.
  • The prior cycle highs were 16.4% in May 2010, 10.1% in September 2003, and 11.3% in June 1992.
  • This rate was at 6.4% in January 2020 versus an all-time low of 5.8% in June 2019.

Our takeaway: the disparity between the unemployment rates of recent college graduates and young workers without higher education has not grown as wide as it was during the Great Recession in the current crisis (chart below). The spread of 5.3 points as of September fell from a post-Great Recession high of 8.5 points in June and compares to an average of 8.3 points during 2009 and 2010.

#3: Underemployment rate for recent college grads and all college grads:

  • “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 33.0% as of September. That’s up from a post-Great Recession low of 31.8% in June and closer to 33.5% in January before the pandemic. The lows over the past two cycles were 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 43.2% in September. That’s up from a post-Great Recession low of 38.3% in June and above 40.6% in January. The lows over the past two cycles were 37.6% in May 2001 and 41.5% in February 2008.

Our takeaway: the underemployment rate of college graduates is returning to normal levels likely as service sector jobs come back, but it is picking up quickly to levels not seen since 2017 for recent grads as they try to land any job they can.

The upshot: even with work-from-home opportunities, college degrees are not providing recent graduates with the same level of job security and access to the labor market as it did during the Great Recession. Additionally, joblessness among recent college grads and young workers without degrees is just one more reason Congress needs to pass an extension of enhanced unemployment benefits as soon as possible to keep them attached to the labor force. That will help this cohort – strapped with record levels of student debt – keep looking for work until they find it, rather than dropping out of the workforce and falling further behind the curve in their career development.