Young college graduates face weak labor market

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Snapshot for May 24, 2006.

Young college graduates face weak labor market
The labor market for young college graduates, those ages 25 to 35, is slowly improving, but remains much weaker than before the last recession in 2001. It has been 20 years since young college graduates have experienced employment rates as low as those experienced in the last five years.

These well-schooled individuals—possessing at least a bachelor's degree, and in some cases, an advanced degree—would be expected to fare better than those without college degrees because demand for their skills should insulate them from labor market fluctuations. However, employment trends still indicate that young college graduates have not returned to the wage levels or employment rates at the start of the recession.

The real hourly wages of young college graduates have picked up slightly over the last year after declines for three years in a row. Hourly wages in 2005 were $23.10, up from $23.03 in 2004, but still below the level of $23.77 in 2001 (Figure A).

The failure of wages to recover can be attributed to slow employment growth. Compared to the last "jobless recovery" of the early 1990s, employment rates of young college graduates have fallen farther and failed to bounce back. In 1989, the peak year before the last recession, the employment rate for this group was 87.7%, similar to their employment rate in 2000 (87.4%), the most recent peak year. Five years later, by 1994, the employment rate of young college grads had fully recovered, as compared to the 1.9 percentage point decline between the 2000 peak and 2005 (85.5%).

The employment rate did pick up between 2003 and 2005 (1.2 percentage points), but it is still far below the rates experienced in the mid-1990s through 2000, when employment exceeded 87.4% each year (Figure B).

Although the overall employment situation has been improving since 2003, employment growth has been too slow to compensate for the losses during the recession and jobless recovery. Young college graduates are still facing lower real wages than they did five years ago. Unless employment rates climb steadily, picking up the slack in the labor market, these young workers will lack the power to bid up their wages very much.

This week's Snapshot was written by EPI economist  Elise Gould.