Money: The rotten luck of graduating into a recession

Money: The rotten luck of graduating into a recession

As colleges conclude their virtual graduation ceremonies, young workers are confronting the grim reality of an awful labor market. We are living through the worst employment landscape since the Great Depression, with millions of Americans sidelined, because of the global health and now, financial, pandemic.

While many of the jobs lost will return in the coming weeks and months as parts of the country reopen and lockdowns recede, the employment outlook has changed substantially. The National Bureau of Economic Research, or NBER, expects “that COVID-19 is a major reallocation shock,” which will mean a staggering 42% of the recent layoffs will become permanent ones. Based on springtime employment reports, that translates into 11.6 million jobs permanently lost.

This is a problem for all workers, but especially for new entrants into the labor force, who now must compete with millions of more experienced job seekers, vying for a shrinking number of available positions. The National Association of Colleges and Employers, which was predicting a robust job market a few months ago, now finds that more than one in five employers are considering yanking offers that have already been made to the class of 2020.

A somewhat bright bit of news for new grads is that data still shows that those who earn the degree are likely in better shape than those who do not. Through April, the unemployment rate for those with at least a bachelor’s degree was 8.4%, compared to 21.2% for people without a high school diploma.

The bad news is that those who graduate into a recession make less money in the early part of their careers. NBER quantified the damage in a 2006 paper “The Career Effects Of Graduating In A Recession,” which found “graduating in a recession leads to large initial earnings losses.” These losses eventually recede, but slowly — halving within five years but not disappearing until about ten years after graduation.

A more recent accounting by the New York Federal Reserve Bank examined the fallout from the Great Recession for new graduates. “Those unlucky college graduates who started their careers in the aftermath of the Great Recession struggled to find jobs, let alone jobs that utilized their degrees,” which prompted many recent grads to become underemployed—that is, working in jobs that typically do not require a college degree.

The underemployment rate for recent college graduates, which “hovered at around one-third for at least the past 25 years,” soared to more than 46% after the Great Recession, as many graduates took any job they could.

Contrary to popular perception, most underemployed recent college graduates were not working in low-skilled service jobs after the Great Recession. Many found decent-paying positions in information processing, sales, and office and administrative support jobs. It’s true that while many of the jobs such graduates took may have technically not required a college degree, they “appeared to be more oriented toward knowledge and skill when compared to the distribution of jobs held by young workers without a college degree.”

The best news for the class of 2020 may be this: the New York Federal Reserve Bank empirical analysis “suggests that underemployment is a temporary phase for many young graduates when they enter the labor market, as it often takes time for newly minted graduates to find jobs suited to their education.” As the virus recedes, recent grads should be able to slowly regain their footing in the labor market.

Jill Schlesinger, CFP, is a CBS News business analyst. Email: askjill@jillonmoney.com.

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