How Today’s Tough Job Market Could Haunt Recent Graduates for Years

Today’s class of college graduates is entering one of the weakest labor markets in years, and research suggests that those early setbacks could echo through their earnings and careers for at least a decade. 

According to a recent report from The New York Times, recent college graduates are stepping into the most challenging job market since the depths of the pandemic. An analysis from the Federal Reserve Bank of New York shows that unemployment among 22- to 27-year-old college graduates has increased over the past three years, reaching 5.6% in the first quarter of the year. 

That’s above the 4.2% overall jobless rate. College graduates usually enjoy lower unemployment than the broader workforce, so the current gap is a sign that entry-level hiring has weakened disproportionately. 

At the same time, underemployment has surged. More than 40% of employed recent graduates are in roles that do not typically require a college degree, the highest level since 2020, per the Federal Reserve Bank of New York. 

“The overall labor market is not in a recession right now,” Larry Katz, a labor economist at Harvard, told the Times. “But it’s clearly feeling like a recession for young college graduates entering the labor market.”

Economists told the Times that the tough job market means graduates are likely to earn less and face more challenges in advancing their careers. Research has repeatedly found that the year a worker leaves college, and the state of the economy at that moment, can shape how much they earn in the long term.

One study examined the effects of a weak job market on wages 

One influential study by Lisa Kahn, an economist at the University of Rochester, examined what happened to students who graduated around the deep recession of the early 1980s, following them for many years before, during and after that downturn. 

She compared them to cohorts who were otherwise similar, but who entered the labor market under very different macroeconomic conditions, when the economy was a little better. 

Khan’s core finding was that graduating from college when unemployment is high and jobs are scarce has a clear, measurable and long-lasting negative impact on wages. 

New graduates who started their careers in that weak labor market accepted lower‑paying jobs than they likely would have in better times, and those smaller paychecks did not simply snap back when the economy recovered. Instead, their earnings grew from a lower base, so even as conditions improved, the initial penalty continued to linger.

Fifteen years after graduation, workers who entered the job market during the downturn were still earning less, on average, than similar peers who began their careers in healthier job markets. 

Now Kahn warns that the current group of college graduates could be haunted by a weak job market in the form of reduced earnings and employment opportunities. 

“There are going to be lasting effects,” Kahn told the Times. “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.”