By Alyssa Davis, Will Kimball, and Elise Gould | May 27, 2015
Introduction and key findings
The Great Recession has had lasting effects on employment prospects of young people entering the workforce after graduating from high school or college.
Despite officially ending in June 2009, the recession left millions unemployed for prolonged spells, with recent workforce entrants such as young graduates being particularly vulnerable. The slow pace of the recovery means that seven classes of students have graduated into an acutely weak labor market and have had to compete with more-experienced workers for a limited number of job opportunities. This is on top of the fact that graduates since 2000 have confronted suboptimal labor market conditions, resulting in stagnant wages and limited job opportunities. While recent improvements in economic conditions have finally begun to brighten young graduates’ job prospects, the labor market is still far from recovered from the Great Recession.
This paper’s title, The Class of 2015, is admittedly something of a misnomer, as we do not yet know the labor market outcomes of these graduates. However, the outcomes of recent high school and college graduates provide a good sense of the labor market conditions faced by the young men and women who graduate this spring. This paper focuses on recent high school (age 17–20) and college graduates (age 21–24) who are not enrolled in further schooling. We analyze employment, enrollment, and wage trends in order to glean the Class of 2015’s economic prospects as they start their careers.
Due to the progression of the economic recovery and a modest improvement in the unemployment rate, members of the Class of 2015 currently have better job prospects than the classes of 2009–2014. However, the Class of 2015 still faces real economic challenges, as evidenced by elevated levels of unemployment and underemployment, and a large share of graduates who still remain “idled” by the economy. In addition, wages of young high school and college graduates have failed to reach their prerecession levels, and have in fact stagnated or declined for almost every group since 2000.
Key findings include:
- Unemployment of young graduates is extremely high today, but not because of something unique about the Great Recession and its aftermath that has affected young people in particular. Rather, it is high because young workers always experience disproportionate increases in unemployment during periods of labor market weakness—and the Great Recession and its aftermath is the longest, most severe period of economic weakness in more than seven decades.
- Unemployment and underemployment rates among young graduates are improving but remain substantially higher than before the recession began.
- For young college graduates, the unemployment rate is currently 7.2 percent (compared with 5.5 percent in 2007), and the underemployment rate is 14.9 percent (compared with 9.6 percent in 2007).
- For young high school graduates, the unemployment rate is 19.5 percent (compared with 15.9 percent in 2007), and the underemployment rate is 37.0 percent (compared with 26.8 percent in 2007).
- The high share of unemployed and underemployed young college graduates and the share of employed young college graduates working in jobs that do not require a college degree underscore that the current unemployment crisis among young workers did not arise because today’s young adults lack the right education or skills. Rather, it stems from weak demand for goods and services, which makes itunnecessary for employers to significantly ramp up hiring.
- The share of young graduates who are “idled” by the economy—neither enrolled in further schooling nor employed—remains elevated in the wake of the Great Recession. This indicates that many graduates are unable to take the two main paths—receiving further education or getting more work experience—that enable future career success.
- Among young college graduates, 10.5 percent are neither enrolled nor employed (compared with 8.4 percent in 2007).
- Among young high school graduates, 16.3 percent are neither enrolled nor employed (compared with 13.7 percent in 2007).
- Wages of young college and high school graduates are performing poorly—and are substantially lower today than in 2000. The real (inflation-adjusted) wages of young high school graduates are 5.5 percent lower today than in 2000, and the wages of young college graduates are 2.5 percent lower.
- Women in particular have seen large declines in hourly wages, among both high school and college graduates.
- Young high school and college graduates’ wages follow the same trends as those of older graduates, signaling that the slowdown in young graduates’ wages stems from a wider wage growth problem.
- The overall unemployment rates, idling rates, and wages of young graduates mask substantial racial and ethnic disparities in these measures.
- The unemployment rates of blacks and Hispanics are substantially higher than the unemployment rates of white non-Hispanics, for both young high school graduates and young college graduates.
- The share of young black and Hispanic graduates who remain unemployed and not enrolled in further schooling is substantially higher than that of white graduates.
- The cost of higher education has grown far more rapidly than median family income, leaving students with little choice but to take out loans which, upon graduating into a labor market with limited job opportunities, they may not have the funds to repay.
- From the 1983–1984 enrollment year to the 2013–2014 enrollment year, the inflation-adjusted cost of a four-year education, including tuition, fees, and room and board, increased 125.7 percent for private school and 129.0 percent for public school (according to the College Board).
- Between 2004 and 2014, there was a 92 percent increase in the number of student loan borrowers and a 74 percent increase in average student loan balances (according to the Federal Reserve Bank of New York).
- Due to young college graduates’ limited job opportunities, stagnating wages, and the rising cost of higher education, college is becoming an increasingly difficult investment.
- Graduating in a weak economy has long-lasting economic consequences. Economic research suggests that for the next 10 to 15 years, those in the Class of 2015 will likely earn less than if they had graduated when job opportunities were plentiful.
- The policy solutions to improve the job prospects of young high school and college graduates are the same solutions needed to help generate broad-based demand for all workers.
- We should pursue full employment and boost wages through prioritizing low rates of unemployment when making monetary policy, publicly financing employment programs and investing in infrastructure, strengthening collective bargaining rights, raising the minimum wage, strongly enforcing labor standards, and ending discriminatory practices that contribute to race and gender inequalities.
In good times and bad, unemployment rate twice as high for young workers
In economic recessions as well as expansions, the unemployment rate of young workers (those under age 25) is typically a little more than twice as high as the overall unemployment rate. On average between 1989 and 2007, the unemployment rate of workers under age 25 was 2.2 times as high as the overall unemployment rate (see Figure A for national data and Appendix Table A1 for state-level data). This trend persists over time because young workers are relatively new to the labor market—often looking for their first or second job—and they may be passed over in hiring decisions due to lack of experience. As for young workers who are already employed, their lack of seniority makes them likely candidates for being laid off if their firm falls on hard times or is restructuring. Young workers also tend to be more mobile than older workers, moving between employers, careers, or cities, and thus spend a larger share of their time as job seekers.
Read the rest of this article at EPI: The Class of 2015: Despite an Improving Economy, Young Grads Still Face an Uphill Climb | Economic Policy Institute