Recent College Grads Face Challenges in Recession Aftermath

New college graduates faced a tough job market during the recession, but since 2010 the market has improved slightly every year. Early indications suggest that 2014 saw more significant improvements in Idaho and the nation.

Based on U.S. Bureau of Labor Statistics data, the unemployment rate for 20- to 29-year-olds with bachelor’s degrees but nothing higher peaked in 2009 at 17.6 percent, nearly double the 9 percent in 2007. The rate declined to 14.9 percent in 2010, dropped to 13.5 percent in 2011 and then fell to 8.8 percent in 2013.

Recent college grads faced a labor market full of degree holders laid off during the severe recession. The number of people turning 18 peaked in 2009, while the portion of young adults in the United States who completed a four-year college degree hit a record high in 2012. A full third of 25-to-29-year-olds now hold degrees. The rate of young adults earning a bachelor’s degree rose from 28 percent in 2006 to 33 percent in 2013. The increase partly reflects a long-term trend. In 1971, only 17 percent of young adults had four-year degrees. That intensified as the recession nixed job opportunities, spurring college enrollment. Idaho also saw record numbers of students graduating from college in recent years.

In addition to beginning careers in the aftermath of the most severe recession since the Great Depression, many recent college graduates are feeling intense pressure under the weight of their student loan debt. Outstanding student loans exceed $1 trillion, having passed credit card debt and auto loans as the next largest source of family debt after mortgages.

In Idaho, according to Federal Reserve Board of New York Consumer Credit Panel/Equifax statistics, the number of student borrowers with outstanding debt nearly doubled from 116,000 in the fourth quarter of 2004 to 206,000 eight years later while the average debt per borrower rose from $13,700 to $22,400. The number of delinquent borrowers hit 16.8 percent, up from 9.1 percent in 2004.

A Profound Impact

A January report by the Federal Reserve Bank of New York found  the aftermath of the 2007-2009 recession had a far more profound impact on the employment prospects of recent college graduates than previous recessions. Writers Jaison R. Abel, Richard Deitz and Yaqin Su defined recent college graduates as those with at least a bachelor’s degree who are 22 to 27 years old. After the recession ended, the unemployment rate for all college graduates peaked around 5 percent in 2010 while the unemployment rate for recent college graduates was around 7 percent. From 1990 to 2013, the jobless rate averaged 4.3 percent for recent college graduates compared with 2.9 percent for all college graduates. “These results suggest finding a job tends to be more difficult for those just out of school than for those who have been out of school longer,” the report states. “Moreover, this disparity exists at all points in the business cycle.”

But unemployment among young college graduates was not nearly as severe as for other young Americans. About 17 percent of young adults with only a high school diploma were unemployed at the same time.

In 2007, the Idaho Department of Labor registered 2,868 job seekers aged 22 to 30 who had bachelor’s degrees but no advanced degrees. By 2009 there were 4,445 registrants in that category. By last year, the number had dropped to 3,090 – still 7.7 percent above the 2007 level. Job applicants of the same age with no schooling beyond high school increased 12.8 percent, indicating those without a college education were more likely to suffer job loss during the recession.


The increase in underemployment was even more dramatic than the increase in unemployment. The underemployment rate for new college graduates – those working jobs that do not require a college degree – rose substantially from 34 percent in 2001 to 44 percent by 2012 as a growing number accepted jobs that were part time or low paying or both.

The Federal Reserve Board report noted it was not unusual for new college graduates to struggle to find appropriate full-time jobs as they transitioned into the labor market. “However, when we delve further to examine the quality of jobs held by the underemployed, we find  recent graduates are increasingly working in low-wage jobs or part time,” the report says. “We conclude that while elevated rates of unemployment and underemployment may be typical for recent college graduates, finding a good job has indeed become more difficult.”

Over the past decade, the share of underemployed college grads in what the Fed study called “good non-college jobs” paying at least $45,000 a year declined from more than half to slightly over a third. Meanwhile, the share of “low-wage jobs” paying $25,000 a year or less rose to about 20 percent from roughly 15 percent.

Further evidence of underemployment comes from the Bureau of Labor Statistics. In 2013, an estimated 260,000 college graduates were working at or below the federal minimum wage of $7.25 an hour – down from a peak of 327,000 in 2010 but more than twice the 127,000 in 2007. That included an estimated 26,000 people with masters’ degrees, nearly three times the number in 2007.

Although many recent grads experienced underemployment, many eventually find jobs in their fields. Underemployment tends to be temporary for college graduates. Even after the recession hit, a Pew Research study found each year about 27 percent of bachelor-degree holders stuck in high-school level jobs transitioned to college-level employment.

Upskilling or Degree Inflation?

Some of the increase in underemployment may reflect “upskilling” – changing the responsibilities or technology associated with a job so that it requires people with more skills. As jobs are upskilled, they may require people with more education. For example, in recent years the technology requirements for supply chain management and logistics has risen to the point that those jobs now typically require a college degree. Thirty-two percent of hiring managers and human resource professionals said they are hiring more employees with college degrees for positions that were historically held by high school graduates, according to a 2013 survey by CareerBuilder.

According to some labor market experts in many sectors a college degree is becoming the new high school diploma – the minimum requirement for middle-skill jobs. In the past, graduating from high school signaled to employers an individual was capable of completing things and had some ability to write and compute. Now, employers may be using college diplomas for the same purpose. Economists often refer to this as “degree inflation.” The recession and the tsunami of résumés submitted for every job posting also contributed to this phenomenon.

Majors Matter

Choosing the right college major can greatly increase a graduate’s chance for employment. The Federal Reserve Bank of New York report found students majoring in fields that provide technical training such as engineering, mathematics and computers or majoring in fields geared toward growing parts of the economy such as education and health tend to do relatively well even in today’s challenging labor market. The lowest unemployment rates were among those with majors in health care at 3 percent and education at 4 percent. On the other end, the unemployment rate for architecture and construction majors was 8 percent – a finding consistent with the lack of jobs in housing-related sectors. Liberal art majors also had relatively high unemployment rates at 7 percent to 8 percent.

Similar differences in unemployment rates by college major were noted in a May 2013 report from the Georgetown Center on Education and the Workforce. “Hard Times: College Majors, Unemployment and Earnings: Not All College Degrees Are Created Equal” found that STEM majors — science, technology, engineering and mathematics — typically offer the best opportunities for employment and earnings while unemployment rates were higher for graduates with nontechnical degrees. In 2012, STEM graduate unemployment rates were 4.8 percent in health and science, 5.9 percent in mathematics, 7 percent in engineering and 8.7 percent in computer science while the unemployment rate was 9.8 percent for arts grads and 9.2 percent for law and public policy grads. Graduates in psychology and social work also had a relatively low rate at 8.8 percent because almost half of them work in health care or education.

Unlucky Timing

Many people who graduated since the recession began are likely to be haunted by its aftermath for years to come. Graduating in a bad economy has long-lasting economic consequences. It can take years for earnings to recover to the levels they would have earned if they had finished school in a better economy. That also means fewer savings for retirement.

Research suggests the first few years after college play an outsized role in determining workers’ career trajectories. In a poor economy, graduates are more likely to receive lower wages and have fewer opportunities for advancement. Some never move off that second-tier track.

A 2013 study by Yale University economist Lisa Kahn found after the 1980s recession, new college graduates lost 6 percent to 7 percent in initial wages for every one percentage point increase in the unemployment rate. Although the impact eventually lessened, even 15 years after graduation, those who graduated during a recession earned less than similar people who graduated in better times.

College Still a Good Investment

The Federal Reserve Bank of New York report emphasized that despite the unemployment and underemployment among young college graduates, college still was a good investment. “While it appears the labor market has become more challenging for recent college graduates, it is much worse for young people who don’t have a college degree,” the report concluded.

In June, the U.S. unemployment rate for high school graduates who haven’t attended college was 7.3 percent while the unemployment rate for college graduates was 3.9 percent. College-educated Idahoans also are less likely to be unemployed.

college grad graph 1

The Rising Cost of Not Going to College – a February report from the Pew Research Center – found  today’s college graduates are better situated compared to other workers than in previous generations.

“On virtually every measure of economic well-being and career attainment – from personal earnings to job satisfaction to the share employed full time – young college graduates are outperforming their peers with less education,” Pew found. Of college graduates 25 to 32 years old, 72 percent say college has already paid off, and 17 percent say it will pay off in the future.

The state of Washington’s Education Research and Data Center recently reported it takes college graduates years past graduation to start earning more money than their peers who did not go to college and to get on the path toward recovering their financial investment. The earnings boost from a bachelor’s degree begins about six years after high school graduation with $4,775 more in earnings for women and $1,516 more for men. In the seventh year, women with bachelor’s degrees earn a $5,432 bonus, and men receive a $6,226 boost. The study also said college students give up about $55,000 in potential earnings during college, but quickly make up the loss after they graduate. “It adds to the evidence there’s a good payoff to college,” said economist Greg Weeks, a primary investigator on the report. Researchers controlled for as many of the other behaviors that could lead to more income so the adults they compared had similar high school grade point averages, came from families with similar income levels, worked in similar job markets and to begin with, were just as likely to go to college as each other.

College graduates typically earn considerably more than other workers. In Idaho the Census Bureau’s American Community Survey shows the median earnings for Idaho high school graduates with no further education was $22,708 in 2012 while bachelor-degree holders without advanced degrees earned $38,563.

According to a paper by economist David Autor published this May in the journal Science, the true cost of a college degree is about negative $500,000. That’s right: Over the long run, college is cheaper than free. Not going to college will cost you about half a million dollars. Autor arrived at that number by subtracting from the cost of tuition and fees the lifetime gap between the earnings of college graduates and high school graduates. After adjusting for inflation and the time value of money, the net cost of college is negative $500,000. Because the gap between the earnings of college graduates and other people have grown over time, the net cost of college now is roughly double what it was 30 years ago.

The Class of 2014

The Class of 2014 seems to be finding it easier to land jobs than the classes in the five years before them although the demand for new college graduates is still below pre-recession levels. A National Association of Colleges and Employers survey of employers published last winter suggested that hiring for the Class of 2014 would be up 8.6 percent from the year before. Placement offices at Idaho schools report employers were showing more interest this year than they had since the recession, with the most interest in engineering, computer and information sciences, accounting, marketing and communications majors. While financial institutions and the federal government reduced their hiring this year, most other sectors were hiring more.  Industries showing the largest increase in hiring were manufacturing, nonprofits and education. Many employers increased starting salaries this year after several years of depressed wages.

College grad table 1

Despite the improved outlook, it is still an employer’s market. Heidi Shierholz, an economist with the Economic Policy Institute, pointed out in a May report that this year’s graduates are following “a sizable backlog of unemployed college graduates from the last five graduating classes in an extremely difficult job market.” But that backlog is diminishing over time.

Over the next few years, young college graduates should see improved prospects as 76 million baby boomers, who delayed retirement and continued working when the economy was poor are set to retire in greater numbers., regional economist
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