The Other Un-Employment Problem

The Other Un-Employment Problem

When you hear about the hard times for today’s graduates do you nod sympathetically while secretly rolling your eyes? If you are older than 20something yourself, you may well believe that things have always been tough for new grads, and that no, things are not different this time. Well, actually they may well be.


Let’s start by differentiating between the concepts of unemployment (not having a job) and underemployment (having one, but having one that is below your qualifications). On that first score, we know that college or university grads do tend to find work, although many will tell you that it is depressingly ‘barista-type’ work. The problem is not so much unemployment as it is underemployment. But is that an anecdotal story, or is there any real evidence to back it up?

Turns out, the barista problem is a real one. The latest study on graduate underemployment comes from the New York Federal Reserve, which looked at the experience of recent U.S. grads and compared it to earlier graduates. They made the assumption that anyone who has a bachelor’s degree and worked in a position that did not require one (meaning that at least 50 percent of those who held the job felt that one was required) was ‘underemployed’. Then, they calculated the ‘underemployment rate’ – the percentage of new graduates who were underemployed compared to all employed graduates.

What the New York Fed researchers found is that the underemployment rate now is indeed significantly elevated from its historical norm. Going back to the mid-1990s, the underemployment rate for new graduates has generally been around 33 percent, which is high enough. Since 2001, however, the rate has been on the rise, and as of 2012 was around 44 percent. To be fair, the rate has been this high before, and in fact hit 46 percent in the early 1990s. In that case, however, it moved down fairly sharply after that particular recession ended. Given that the U.S. has not been in ‘recession’ for five years or so, it is not clear that we are going to witness a similar reversal anytime soon.

The report does not delve too deeply into the reasons for the underemployment issue, but clearly the depth of this last recession and the subsequent industrial restructuring are the main reasons for the lack of ‘good’ jobs. I would throw in another reason, however, and say that the financial position of baby boomers is another problem weighing on the new grads.

Boomers, as has been well-documented, have not saved as much as they wanted for retirement; many U.S. boomers got hit in the housing meltdown; fewer than ever have cushy pension plans provided by their employers. As long as their health holds up, they will not leaving the workforce anytime soon and that gives employers fewer chairs to fill as well. It is another legacy of this particular recession.

The ‘good’ news is that as time goes on, college grads tend to move from underemployment to jobs that do use their skills. The graph below shows that clearly: by age 35, few college graduates tend to be underemployed. Clearly they started where they had to, and they climbed the ladder although perhaps more slowly than they would have wished.

Source: New York Federal Reserve

Source: New York Federal Reserve

The boomer issue may slow things down, but hopefully it will not be “different this time” and new graduates will indeed find their way out of underemployment.



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