College Grads’ Job-Finding Advantage Shrinks to Historic Low

High school graduates have long faced higher unemployment rates than their college-educated peers, a fact pattern that has underpinned decades of career guidance. But that gap is now narrowing, raising new questions for employers, educators, and policymakers about the evolving value of a college degree. 

A new analysis from the Federal Reserve Bank of Cleveland attributes the shrinking divide not to dramatic gains among high school graduates, but to a steady decline in the job-finding rate for young college graduates beginning around 2000 and accelerating since then.  

“College graduates have typically faced lower unemployment rates, found jobs faster, and experienced more stable employment than high school graduates without college experience,” said Baris Kaymak, economic and policy advisor in the Cleveland Fed’s research department. “Combined with higher expected wages, these advantages reinforced higher education as a pathway to economic security,” he said. “However, some of the long-standing job market advantages offered by having a college degree may be eroding.” 

The post-pandemic labor market appears to be amplifying these concerns. Young college graduates ages 22 to 27 are now experiencing higher-than-average unemployment rates and reporting greater difficulty landing that crucial first job. Anxieties about AI replacing entry-level analytical and professional roles are compounding the pressure, especially as early career setbacks can have lasting effects on lifetime earnings. 

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While job stability and compensation still tilt strongly in favor of college degree holders once they are employed, the analysis shows that the job-finding rate for young college graduates has fallen to roughly match that of high school graduates. The unemployment gap between these two groups has declined continually since the 2008 financial crisis, recently reaching its lowest level since the late 1970s. 

Kaymak and Alexander Cline, a research analyst, used data from the Current Population Survey, a monthly survey sponsored by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics. They found that high school graduates historically had a higher unemployment rate than that of college graduates, but that this gap has narrowed.  

“This narrowing reflects a tale of two job markets,” Kaymak said. “Young high school workers are riding the wave of the historically tight post-pandemic labor market with well-below-average unemployment compared to that of past high school graduates, while young college workers are experiencing unemployment rates rarely observed among past college cohorts barring during recessions.” 

The research shows that high school graduates are finding new jobs (or leaving the labor force altogether) faster than college graduates. Prior to 2001, young high school graduates remained unemployed longer and became unemployed at a higher rate than college graduates. But there has been a reversal in regaining employment in recent years, a key factor behind the narrowing of the unemployment rate gap, according to the analysis. 

The question is: Are high school graduates exiting unemployment by finding a job, or are they disengaging entirely from labor participation? Put another way, are high school graduates getting discouraged more easily or finding jobs more quickly relative to college graduates? 

Historically, college graduates have found jobs faster. Both groups experienced cyclical fluctuations, but long-term trends moved together between 1976 and 2000, Kaymak said. Patterns diverged after 2000, with high school graduate job-finding rates remaining stable despite a prolonged downturn after the 2008 recession, while college graduate rates have declined consistently since 2000. 

By contrast, discouragement rates show no differential trends, Kaymak said. “Declining job prospects among young college graduates may reflect the continued growth in college attainment, adding ever larger cohorts of college graduates to the ranks of job seekers, even though technology no longer favors college-educated workers.” 

Recently published research from the Stanford Digital Economy Lab and Stanford University found evidence that the AI revolution is beginning to have a significant and disproportionate impact on entry-level workers in the U.S. labor market. 

“We find that since the widespread adoption of generative AI, early-career workers ages 22-25 in the most AI-exposed occupations have experienced a 13% relative decline in employment,” said Erik Brynjolfsson, director of the Stanford Digital Economy Lab and a professor and senior fellow at the Stanford Institute for Human-Centered AI. “In contrast, employment for workers in less exposed fields and more experienced workers in the same occupations has remained stable or continued to grow. Furthermore, employment declines are concentrated in occupations where AI is more likely to automate, rather than augment, human labor.” 

But Kaymak pointed out that developments related to AI, which may be affecting job-finding prospects in some cases, cannot explain the decline in the job-finding rate for college graduates stretching back before the advent of the AI era. 

Research: Automation, Generative AI, and Job Displacement Risk 

The job-finding edge long enjoyed by college graduates is narrowing, raising questions about the return on higher education, but there are still long-term benefits to gaining a college degree.  

College graduates “continue to experience lower job separation rates than high school graduates, meaning greater job security once employed,” Kaymak said. “College graduates also still retain substantial wage premiums. The convergence we document concerns the initial step of securing employment rather than overall labor market outcomes.”