Something Alarming Is Happening to the Job Market

The Atlantic no paywall: “Something strange, and potentially alarming, is happening to the job market for young, educated workers. According to the New York Federal Reserve, labor conditions for recent college graduates have “deteriorated noticeably” in the past few months, and the unemployment rate now stands at an unusually high 5.8 percent. Even newly minted M.B.A.s from elite programs are struggling to find work. Meanwhile, law-school applications are surging—an ominous echo of when young people used graduate school to bunker down during the great financial crisis. What’s going on? I see three plausible explanations, and each might be a little bit true. The first theory is that the labor market for young people never fully recovered from the coronavirus pandemic—or even, arguably, from the Great Recession. “Young people are having a harder time finding a job than they used to, and it’s been going on for a while, at least 10 years,” David Deming, an economist at Harvard, told me. The Great Recession led not only to mass layoffs but also to hiring freezes at many employers, and caused particular hardships for young people. After unemployment peaked in 2009, the labor market took time to heal, improving slowly until the pandemic shattered that progress. And just when a tech boom seemed around the corner, inflation roared back, leading the Federal Reserve to raise interest rates and cool demand across the economy. White-collar industries—especially technology—were among the hardest hit. The number of job openings in software development and IT operations plunged. The share of jobs posted on Indeed in software programming has declined by more than 50 percent since 2022. For new grads hoping to start a career in tech, consulting, or finance, the market simply isn’t that strong.

A second theory points to a deeper, more structural shift: College doesn’t confer the same labor advantages that it did 15 years ago. According to research by the San Francisco Federal Reserve, 2010 marked a turning point, when the lifetime-earnings gap between college grads and high-school graduates stopped widening. At the same time, the share of online job postings seeking workers with a college degree has declined. To be clear: College still pays off, on average. The college wage premium was never going to rise forever, and the fact that non-college workers have done a little better since 2010 isn’t bad news; it’s actually great news for less educated workers. But the upshot is a labor market where the return on investment for college is more uncertain. The third theory is that the relatively weak labor market for college grads could be an early sign that artificial intelligence is starting to transform the economy..”