Bad Times for College Graduates

Where have all the jobs gone, and why does it matter?

There are so many bad things happening right now, from wars to the looming loss of health insurance for millions of Americans, that the plight of recent college graduates unable to find jobs may not seem like that big a deal. But it’s unusual: Highly educated Americans normally have considerably lower unemployment than the average worker. And it also suggests that something is happening under the surface of an economy that by many of the usual measures still looks pretty good.

So let me take a break from my usual concerns to talk about what may be going on for graduates and what it might mean for the future.

What you need to know: What we’re looking at now isn’t the worst job market college graduates have ever seen. It is, however, the worst such market compared with workers in general that we’ve ever seen, by a large margin. Nobody knows for sure why this is happening, but it’s not a good omen. And the recent graduates themselves will be hurt, not just in the near term, but for the rest of their lives.

The New York Fed recently published a chart comparing unemployment rates for workers divided in two different ways — age and education:

Source: Federal Reserve Bank of New York

Young workers always have higher unemployment than workers as a group. College graduates always have lower-than-average unemployment. But normally education trumps age: Even recent college graduates have relatively low unemployment.

But not now. As I suggested, the current unemployment rate for young college graduates isn’t the highest we’ve ever seen. But previous peaks have come at times of general economic distress, like the aftermath of the global financial crisis. Now we have low overall unemployment, only slightly above historic lows, but unemployment among college graduates between 22 and 27 at recession-like levels.

This has never happened before. Derek Thompson at The Atlantic plots the differential between recent-grad and overall unemployment over time:

Source: Derek Thompson

The only time college graduates were anywhere close to having higher than average unemployment was at the beginning of the 2000s, when America was in a recession after the tech bubble burst. Now grads are deep in the hole even though the nation as a whole isn’t (yet?) in a recession.

And even these numbers are basically for Americans in their mid-20s, many of whom have already been working for a while. Anecdotes suggest that the situation for those just graduating and looking for their first job is near-catastrophic, with many unable to find any job at all.

So what is going on? Like Thompson, I’d mostly discount the idea that this is largely about AI displacing educated workers. That might happen eventually, but replacement of workers by AI (or the complex number-crunching that we have, misleadingly, been calling AI) is probably too new a phenomenon to explain such a drastic change.

A more likely story, as many have pointed out, is that we’re looking at one consequence of an economy that has been “frozen” by uncertainty, largely uncertainty about U.S. government policy.

Most of the discussion in recent months has involved Donald Trump’s drastic but erratic changes in tariff policy. Imagine that you’re running a business for which decisions about where and how to invest depend a lot on what tariff rates you expect to prevail a year or two from now. Should you make investments assuming that, say, the cost of imported merchandise will be similar to what it was 6 months ago, or should you assume that average tariffs will remain where they are right now, at the highest level in 90 years?

Nobody knows.

Nor is it just tariffs. For a few months, the Trump administration’s harsh rhetoric on undocumented immigrants wasn’t translating into large-scale deportations. Now significant raids on workplaces have begun. But over the course of just a few days we saw Trump suddenly modify policy, then reverse himself — declaring that agriculture and hospitality would not face disruptive raids, then canceling that declaration. What will actual deportation policy look like? Nobody knows.

So what does a business do in the face of this kind of uncertainty? It tries to avoid making commitments that it may soon regret.

And hiring recent college graduates is a significant commitment. Whatever their formal training, young people need to acquire real-world experience to be effective in their new jobs. Employers need to be willing to spend time and money while new hires gain this experience. And in this uncertain environment, that’s not a commitment employers are willing to make. They may hold on to their existing workers, at least for now, but they won’t hire.

Let me also spitball a bit and suggest that other Trump policies may also be depressing the market for highly educated young people.

First, DOGE’s depredations have pushed a lot of highly educated people out of the federal work force and onto the job market. Indeed’s Hiring Lab estimates that almost 70 percent of the former federal workers now searching for new jobs have at least a bachelors’ degree. I don’t think that it’s unrealistic to suggest that these are experienced workers in effect competing for the jobs new college graduates might normally expect to land.

And what about the Trump administration’s drastic cuts in funding for scientific research? Is it foolish to suggest that these cuts directly and indirectly cut into job opportunities for new graduates?

So how long will it take for students graduating into this bad job market to recover from their bad luck? The answer, according to a 2023 survey by the National Bureau of Economic Research, is basically “forever.” Graduating into a bad labor market can make you miss a step on the job ladder, depressing your earnings for a decade or more. It increases your chances of being in poor health well into middle age. It even reduces your chances of having a successful marriage.

Oh, and you’ll still be burdened with student debt, now that Trump has reversed the Biden administration’s efforts to offer some relief.

In short, today’s no good, very bad market for recent college graduates is a bigger problem than many people realize. It will cast a shadow on America for years to come. And the Trump administration bears much of the blame.

MUSICAL CODA