Tuesday, January 7, 2014

College Graduates, Employment and Underemployment

Updated July 2015

While it is hard to dispute that the employment situation in the United States has improved since 2008 - 2009, for one group of Americans, the percentage who are either unemployed or underemployed is still elevated, particularly compared to the situation of a decade ago.

For many Americans, the ticket to success is closely tied to post-secondary education.  As we can see on this graph, it is quite apparent that a college education improves the odds of getting a job as shown on the red and blue lines:

By way of comparison, young workers had a peak unemployment rate of nearly 16 percent after the Great Recession compared to 10 percent for the general population.  College graduates had a peak unemployment rate of around 5 per cent, half that of the general population and a third of the rate experienced by young workers as a whole.  It is important to note that recent college graduates (within five years of graduation and between the ages of 22 and 27), have a substantially higher unemployment rate of around 7 percent and that their rate of unemployment remained elevated until 2012 when all other groups were seeing their rates drop.  If we look back in time, for the period from 1990 to 2013, all college graduates had an average unemployment rate of only 2.9 percent and recent college graduates had an unemployment rate averaging 4.3 percent.  This shows us that the current rates of four and six percent respectively are high by historical standards.

Here is a graph showing how college graduates' unemployment rate by age for the period from 2009 to 2011 compares to 1990 and 2000:

While in all three time periods, unemployment among college graduates decreased as the time after graduation rose, however, the rate even at 35 years of age was still 2 percentage points higher or double the rate in 2009 - 2011 than it was in either 1990 or 2000. It is interesting, however, to note that once a college graduate reaches the age of 27, their unemployment rate remains steady at around 4 percent.

Here is a graph showing the underemployment rate for college graduates where underemployment is defined as working in a job that does not require a college degree:

Obviously, the issue of underemployment is a big problem for college graduates even though the rate has held steady for nearly two decades.  The underemployment rate for college graduates (in blue) as a whole stands at around 33 percent; this means that one-third of college graduates are working at jobs that do not require a degree.  The situation is even worse for new graduates as shown on the red line; 44 percent of new graduates in 2012 were working at jobs that do not require a degree.  You will also notice that the underemployment situation for new graduates has worsened significantly since 2000; during the recession at the beginning of the new millennium, the underemployment rate was only 34 percent showing that the current underemployment level is very close to the highest rate seen in nearly two decades.  There is an explanation for this phenomenon; during the 1980s and 1990s, businesses increased their hiring of college-educated workers in an attempt to adapt to the rapid technological changes that were occurring during those two decades.  As information technology matured, the demand for highly educated graduates dropped, resulting in college graduates resorting to employment opportunities that were previously performed by workers with lower skill levels.

Here is a graph showing the share of underemployed recent graduates that are only working part-time (defined as those working less than 35 hours per week):

During the 1990s, only 14 percent of all underemployed college graduates worked part-time, increasing to around 16 percent during the 2000s, not a significant change.  The problem lies with underemployed recent graduates; in 2000, only 15 percent of recent underemployed graduates were working part-time; this rate rose to 23 percent in 2011, nearly a 50 percent increase.  Obviously, underemployment data is showing that there has been a rather significant downward trend in the quality of jobs for recent college graduates. 

Lastly, let's look at the employment outcomes for college graduates by graduation subject major between 2009 and 2011:

It is interesting to see how widely variable post-graduation employment opportunities vary with the field of study chosen.  Engineering graduates have the best overall employment outcomes with only 5 percent unemployed and 20 percent underemployed.  The worst overall outcome is for graduates of leisure and hospitality; while only 4 percent of graduates in these subjects are unemployed, a staggering 63 percent are underemployed.  The highest unemployment rate at 8 percent is for graduates in architecture and construction, not terribly surprising given the retrenchment in the construction industry in the United States during and after the Great Recession, although 60 percent of graduates are still finding full employment in this field.  The lowest unemployment rate at 3 percent is found in those students who graduate in health studies.  In general, students that graduate with majors that provide technical training that emphasizes quantitative and analytical skills had the highest degree of employment after graduation.  While selecting a college major that offers the best employment opportunities is a great idea on paper, it is almost impossible to predict what sector of the economy will absorb the most graduates four or five years down the road.  What is in demand today may lead to long-term underemployment tomorrow.

While it is not terribly surprising that recent college graduates take some time to achieve full employment in their chosen field after graduation, it is apparent that the last decade has seen an increase in the number of college graduates that find themselves overqualified for the low-wage jobs that they are able to get.  In any case, college graduates that have entered the labor market since 2000 are finding that the employment situation is much less "friendly" than it was to their precursors. 

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