Completing a degree is supposed to be a ticket to higher income and greater job stability. And in fact, a bachelor’s degree results in a lifetime income advantage of 12.5% on average versus a high school diploma, depending on the field of study. But recently, something has gone somewhat awry: Recent college graduates are finding it harder to land a job in the first place.
While unemployment across the broader economy remains low at 4.2%, the rate of unemployment for college graduates old less than one year out of school stood at a near record 5.8% as of March. That is up sharply from the 4.6% rate for last year’s graduating class, according to the Federal Reserve Bank of New York.
Furthermore, many graduates who have found work are not employed in fields requiring their specific degree. According to a recent report by the Burning Glass Institute and the Strada Education Foundation, 52% of recent grads are working at jobs that don’t require a bachelor’s degree, a condition known as underemployment. Of those grads who start out underemployed, 45% remain underemployed after 10 years.
What’s going on? There’s no one simple answer, but some kind of structural change appears to be happening in the market for entry level white collar jobseekers.
For most of the time since such records have been kept, a four-year degree was a winning ticket. From 1990 through 2018, the unemployment rate for first year college grads was consistently 1 to 3 percentage points lower than the overall unemployment rate. A sheepskin not only meant greater lifetime earnings but a spot at the front of the line at the employment office.
But that advantage began to erode steadily beginning around 2013. By 2019, the tables had turned, with unemployment among recent degree graduates surpassing the national rate. This divergence has continued to widen, reaching a record 1.6 percentage points in March, the highest on record.
Several explanations are offered for the slump in job offers. Employers remain cautious about adding staff in the post-COVID era, focusing on retaining current employees. The so-called low hire, low fire job market may be an artifact of the critical labor shortages still fresh in the memory of CEOs and business owners. As the economy shows signs of slowing and tariffs weigh on future growth, hiring managers may be prioritizing retention over expansion.
A longer term factor appears to be a growing mismatch between skills required by employers and degrees awarded by colleges and universities. A recent report from Oxford Economics noted that degree holders in fields requiring quantitative reasoning skills including math, science and engineering, have greater prospects of securing entry level employment than graduates in the arts and social sciences. For instance, three quarters of engineering graduates end up in jobs requiring their specialized skills, compared with just 32% of graduates with public safety degrees. Health care professions also offer better prospects for first-time jobseekers.
And then there is artificial intelligence. Evidence so far is mixed as to the extent to which AI has reduced job prospects, but it has clearly begun to bite into demand for skilled human workers, especially at the entry level. This exciting and sometimes alarming technological leap presents the greatest potential challenge for previously immune graduates in some technical fields requiring specialized knowledge.
One commonly cited example is the ability of AI applications like ChatGPT to read, digest and summarize large amounts of information in preparing legal briefs, sharply reducing the employment prospects for paralegals. Similar capabilities are accelerating in computer science fields, including coding and data analysis. In fact, according to the Oxford report, the increase in recent graduate unemployment is concentrated primarily in technological fields like computer science. Google CEO Sundar Pichai stated that 25% of new code written at the company is AI-generated. Another tech CEO, Dario Amodei of AI company Anthropic, believes that the technology will eliminate 50% of entry-level white collar jobs within five years, an outlook shared by Goldman Sachs and the Brookings Institution. An ironic case of man bites dog.
Since the Industrial Revolution, automation has historically displaced manual laborers like factory workers and longshoremen. Artificial intelligence threatens to reduce the need for white collar workers, especially among recent college graduates.
It is also worth noting that technological change accelerates during recessions, as companies seek to boost efficiency to protect the bottom line. An economic downturn would likely induce employers to ramp up investment in AI at the expense of new hiring.
As competition for jobs heats up, there are a few things an applicant can do to improve their odds. Relentless networking is critical, since most job placements are never advertised. Adopting a mindset and practice of continuous learning and improvement is essential, especially if one can demonstrate proficiency at using artificial intelligence to enhance their productivity. Flexibility is also important, since it is unlikely that the first job offer will be the perfect one but can help build new skills and contacts will lead inevitably to a better offer. The same goes for internships as a means of gaining valuable experience and building a network of professional relationships.
The market for new college graduates is becoming more challenging as economic stress and technological acceleration roil the waters. Yet as with all disruptive periods in history, winners will emerge among those who acknowledge and embrace the change.
Christopher A. Hopkins, CFA, is a co-founder of Apogee Wealth Partners in Chattanooga.
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