The strongest labor market in a decade bodes well for the Class of 2017, but young workers, including college grads, still face a challenging labor market relative to older workers.
Temper Those Graduation Party Plans
The Class of 2017 looks set to graduate into the strongest labor market in a decade. The unemployment rate has fallen to its lowest level since before the recession while labor force participation has stabilized despite the aging population. But how does the labor market for young workers measure up?
College graduates have typically had more success in the labor market, hence the willingness of many college-goers to take on debt in order to finance their education. The unemployment rate for all college grads has averaged less than half that of the overall unemployment rate over the past two decades. For young college graduates, however, the right job is not always found quickly. Historically, the unemployment rate for college grads under the age of 25 has run closely in line with the headline unemployment rate. Yet over the past year, the unemployment rate for young college grads has been little changed (top chart).
The stubbornly higher rate of joblessness for young degree holders over the past few years has likely been in part due to greater labor force attachment. Since the onset of the Great Recession in 2008, the labor force participation rate for college grads 20-24 years has fallen less than the overall participation rate.
Nevertheless, there are other signs that young workers, including college grads, still face a relatively daunting labor market. Under-employment remains more pervasive for young workers. In terms of hours, 20-24 yearolds are most likely to find themselves employed part time despite wanting full-time work (middle chart). Others find themselves overqualified for the job they hold. According to data from the New York Fed, 43 percent of college grads ages 22-27 are in jobs that do not typically require a degree compared to 34 percent of all college grads.
At the same time, wage growth among young workers embarking on a career continues to lag. Whereas teenagers have benefited from higher minimum wage laws, median weekly earnings for 20-24 year olds has trailed other age groups since the past recession (bottom chart).
The slow rate of earnings growth for young workers stands to exacerbate the student debt challenges faced by college-goers. However, while debt burdens continue to climb with each successive class (the Institute for College Access & Success estimated the average debt burden for the Class of 2015 at $30,100), there are indications that borrowers are having a slightly easier time coping. The share of federal loans currently in repayment—both in terms of dollars outstanding and number of recipients—has increased over the past year, while delinquency rates have edged lower. That may have more to do with the growth in income-based repayment plans, however, than the (slowly) improving labor market. Over the past year, the number of federal loan recipients on income-driven plans has risen by 1.37 million while falling slightly for non-income based plans.
Source: U.S. Department of Labor and Wells Fargo Securities