Young college graduates are facing a gloomy economic future.
Confronting the toughest job market since the depths of the pandemic, they are likely to make less money in the long term and have more trouble advancing their careers, economists warn.
The rise of artificial intelligence also poses a new threat to the kinds of entry-level knowledge jobs that young graduates have long sought, which could further scramble employment prospects and upend career trajectories.
The result is that the current crop of recent graduates could be left with deep scars that include a reduction in earnings, diminished employment opportunities and even widespread job displacement.
“There are going to be lasting effects,” said Lisa Kahn, an economist at the University of Rochester. “The cohorts that were lucky enough to just finish a little bit earlier or a little bit later I think are going to be doing better.”
The full impact of graduating into this hiring downturn will not come into focus for years, and much remains uncertain, especially about A.I.’s role.
But history suggests that trouble lies ahead.
Economists have broadly found that workers who graduate from college during bad economies fare worse in the long run than their more fortunate counterparts.
In a seminal paper that tracked recent graduates before, during and after the recession in the early 1980s, Ms. Kahn found that “graduating from college in a bad economy has a long-run, negative impact on wages.” Though she found that the effects faded over time, a gap persisted even 15 years later, long after the economy had recovered from that downturn.
A reduction in wages occurs partly because recessions affect the quality and availability of early-career job opportunities, an in-depth 2012 study found. Because larger, higher-paying firms reduce their hiring during bad economies, many recent graduates end up taking positions at smaller, lower-paying firms at first. That thins their résumés and makes it harder to move up the ladder to better-paying jobs.
Workers who graduated from less prestigious schools or with majors that usually lead to lower-paying jobs are at a disadvantage, the study found.
“During recessions, good employers stop hiring,” said Till von Wachter, an economist at the University of California, Los Angeles, and an author of the 2012 study. “There’s a lot of friction in the labor market, so you never quite make it back to the top of the queue.”
The latest group of college graduates is likewise encountering an economy in flux.
Slow hiring for much of the past two years, coupled with a reluctance from employers to fire workers, has led to broad stasis that has hurt new entrants to the labor market, a group that includes young degree holders.
The unemployment rate for college graduates ages 22 to 27 has been up sharply in the last three years and stood at 5.6 percent in the first quarter of the year, according to an analysis from the Federal Reserve Bank of New York. More than 40 percent of those who are employed are working in jobs that do not require a college degree.
“The overall labor market is not in a recession right now,” said Larry Katz, a labor economist at Harvard, “but it’s clearly feeling like a recession for young college graduates entering the labor market.”
The unemployment rate for recent college graduates is not as bad as it got during the Great Recession or during the recession in the early 1980s, Mr. Katz noted. But it is higher than during the recessions in 1990-91 and after the dot-com crash in 2000.
He said he was worried that the rise in remote work since the pandemic meant that young graduates, when they did find work, would have fewer opportunities for training and mentorship, further destabilizing their careers. Employers may also be reluctant to hire young graduates because it is more difficult for managers to mentor and train less experienced employees remotely, according to research from economists at the New York Fed, the University of Virginia and Harvard. That could help explain the postpandemic rise in the unemployment rate for young graduates, they found.
As in the past, the tough job market is forcing many new degree holders to recalibrate their job searches and enter careers they had not considered. Many are settling for jobs that do not require a bachelor’s degree. Others are forgoing employment entirely and instead opting for graduate school.
Accordingly, today’s young graduates might be expected to experience ill effects similar to those faced by their unlucky predecessors during typical economic slumps.
Adding to the uncertainty for young job seekers is that it is too early to know whether the elevated unemployment rate for new college graduates is caused by a cyclical slowdown in hiring — or is the start of an alarming trend brought on by A.I.
So far, A.I. has not wreaked havoc on the labor market despite dire predictions, and it is possible that it will have limited effects on opportunities for recent college graduates.
Other scenarios present a more ominous picture. Under one, companies continue to hire reluctantly as they work to figure out how to deploy the technology, which would hamper the ability of young graduates to switch jobs and raise the risk getting stuck on the employment ladder.
A.I. could also replace some high-skill, college-educated employees, who instead take lower-skill, lower-paying jobs. The shift would push less advantaged workers further down the job hierarchy and depress wages overall.
If A.I. does begin to automate entry-level work en masse, these young college graduates could be disproportionately, and more permanently, harmed.
“If it really does differentially affect entry-level jobs relative to others, then potentially you have a cycle that’s much harder for entry-level workers relative to the experienced workers than it has been in the past,” said Jesse Rothstein, a professor of public policy and economics at the University of California, Berkeley. “That could have larger scarring effects as a result.”
Even if A.I. does not vaporize jobs, the most recent degree holders could encounter a different challenge. Many graduated right before schools began teaching the technology in earnest. As a result, employers may view this current group of graduates as less attractive than those who graduate with more A.I. skills even a year or two later.
Still, young graduates generally do better in the labor market than people without a college education, especially during economic downturns. Though the gap has narrowed in recent years, the unemployment rate for recent college graduates is still lower than for all young workers.
“They’re still doing much better than if they hadn’t gone to college,” said Ms. Kahn, the University of Rochester economist. “That’s an important part of the narrative that people sometimes miss.”
