The Class of 2013 Young Graduates Still Face Dim Job Prospects

Unemployment rate young people compared to population

By Heidi ShierholzNatalie Sabadish, and Nicholas Finio
EPI, April 10, 2013

Class of 2013 faces dim job prospects and depressed wages 

The Great Recession and its aftermath have decimated job prospects and earnings for young workers, a new EPI briefing paper shows. In The Class of 2013: Young graduates still face dim job prospects, Heidi Shierholz, Natalie Sabadish and Nicholas Finio find that for the fifth consecutive year, new graduates will  enter a profoundly weak labor market and will face high unemployment and underemployment rates and depressed wages.

Because young workers always experience disproportionate increases in unemployment during downturns, young workers have confronted particularly high unemployment rates since the end of the Great Recession. For young high school graduates, the unemployment rate is 29.9 percent, compared with 17.5 percent in 2007, and the underemployment rate is 51.5 percent, compared with 29.4 percent in 2007. For college graduates, the unemployment rate is 8.8 percent, compared with 5.7 percent in 2007, and the underemployment rate is 18.3 percent, compared with 9.9 percent in 2007. (The definition of underemployment includes the officially unemployed, people who want a job and are available to work but have given up actively seeking work, and people who are working part-time but want full-time jobs.)

Young workers have also seen their wages decline. Between 2007 and 2012, the wages of young high school graduates dropped 11.7 percent, and the wages of young college graduates dropped 7.6 percent. However, the wages of young graduates fared poorly even before the Great Recession began, as most groups of young workers also saw wage declines between 2000 and 2007. In all, between 2000 and 2012, the wages of young high school graduates declined 12.7 percent, and the wages of young college graduates decreased 8.5 percent. For full-time, full-year workers, this represents a roughly $2,900 decline in annual earnings for young high school graduates and a roughly $3,200 decline for young college graduates.

While attaining additional educational is often identified as a possible option for young people during periods of high unemployment, there is no evidence of young workers “sheltering in school.” Since the start of the Great Recession, college and university enrollment rates have not meaningfully departed from their long-term trend for either men or women. In fact, though some students have had the financial resources to take shelter in school, the lack of substantial increase in enrollment suggests this group has been offset by students who have been forced to drop out of school, or never enter, because a lack of work meant they could not afford to attend.

“Through no fault of their own, these young graduates are likely to fare poorly for at least the next decade through reduced earnings, greater earnings instability and more spells of unemployment,” said Shierholz. “Instead of focusing on deficit reduction, policymakers should be passing policies that will generate demand for U.S. goods and services, and therefore demand for workers who provide them. This is the key to giving young graduates entering today’s labor market a fighting chance.”

Highlights From the Report

The Great Recession that began in December 2007 was so long and severe, and the government response so inadequate, that the crater it left in the labor market continues to be devastating for workers of all ages. The U.S. labor market still has a deficit of nearly 9 million jobs, and the unemployment rate has been at 7.6 percent or higher for more than four years. (In comparison, the highest unemployment rate in the two recessions prior to the Great Recession was 7.8 percent, for one month in the early 1990s downturn.) The weak labor market has been, and continues to be, very tough on young workers: At 16.2 percent, the March 2013 unemployment rate of workers under age 25 was slightly over twice as high as the national average. Though the labor market is now headed in the right direction, it is improving very slowly, and the prospects for young high school and college graduates remain dim.

This paper’s title, The Class of 2013, is admittedly something of a misnomer, as we do not yet know the labor market outcomes of these soon-to-be graduates. However, the outcomes of recent high school and college graduates provide a good sense of the labor market conditions the young men and women graduating in the Class of 2013 this spring will face. This briefing paper examines the labor market that confronts young graduates who are not enrolled in further schooling—specifically, high school graduates age 17–20 and college graduates age 21–24—and details the following findings:

  • Unemployment among young graduates is extremely high today not because of something unique about the Great Recession that has affected young people in particular, but because young workers always experience disproportionate increases in unemployment during downturns. The Great Recession and its aftermath has been the longest, most severe period of economic weakness this country has experienced in more than seven decades.
  • The large increase since 2007 in the unemployment and underemployment rate of young college graduates, and in the share of employed young college graduates working in jobs that do not require a college degree, underscores that today’s unemployment crisis among young workers did not arise because these young adults lack the right education or skills. Rather, it stems from weak demand for goods and services, which makes it unnecessary for employers to significantly ramp up hiring.
  • Unemployment and underemployment rates of most young graduates have only modestly improved since last year, and rates among all graduates are substantially higher than before the recession began.
    • For young high school graduates, the unemployment rate is 29.9 percent (compared with 17.5 percent in 2007) and the underemployment rate is 51.5 percent (compared with 29.4 percent in 2007).

      Underemployment and Unemployment Young High School Grads

For young college graduates, the unemployment rate is 8.8 percent (compared with 5.7 percent in 2007) and the underemployment rate is 18.3 percent (compared with 9.9 percent in 2007).

    • Underemployment and Unemployment Young College Grads
      There is no evidence that young adults have been able to “shelter in school” from the labor market effects of the Great Recession; college and university enrollment rates of both men and women have not meaningfully departed from their long-term trend since the start of the Great Recession.
  • The long-run wage trends for young graduates are bleak, with wages substantially lower today than in 2000. Between 2000 and 2012, the real (inflation-adjusted) wages of young high school graduates declined 12.7 percent, and the real wages of young college graduates declined 8.5 percent.Hourly wages based on education

The erosion of job quality for young graduates is also evident in their declining likelihood of receiving employer-provided health insurance or pensions.

    • Between 1989 and 2011, the share of employed young high school graduates who receive health insurance from their own employer dropped from 23.5 percent to 7.1 percent. Over the same period, the share of employed young college graduates who receive health insurance from their own employer dropped from 60.1 percent to 31.1 percent.
    • Health insurance high school and college grads
      Between 2000 and 2011, the share of employed young high school graduates who receive pension coverage from their employer dropped from 9.7 percent to 5.9 percent. Over the same period, the share of employed young college graduates who receive pension coverage from their employer dropped from 41.5 percent to 27.2 percent.
    • Pensions high school and college grads

Young graduates with jobs lack opportunities for advancement, a trend underscored by the fact that there are now more than 20 percent fewer total voluntary quits each month than there were each month in 2007.

  • Graduating in a bad economy has long-lasting economic consequences. For the next 10 to 15 years, those in the Class of 2013 will likely earn less than if they had graduated when job opportunities were plentiful.
  • The safety net of federal and state assistance programs often does not cover young workers due to eligibility requirements such as significant prior work experience.
  • 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.
  • The scarcity of job opportunities for the Class of 2013 is a symptom of weak demand for workers more broadly. What will bring down young workers’ unemployment rates most quickly and effectively are policies that will generate strong job growth overall, such as fiscal relief to states, substantial additional investment in infrastructure, expanded safety net measures, and direct job creation programs in communities particularly hard-hit by unemployment.

    Youth unemployment by Ethnicity

For the full report click here.

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