Something strange, and potentially alarming, is happening to the job market for young, educated workers,” writes Derek Thompson in The Atlantic. According to new data from the New York Federal Reserve, “labor conditions for recent college graduates have ‘deteriorated noticeably’ in the past few months,” with an unemployment rate now standing at “an unusually high 5.8 percent.”
Even top-tier graduates aren’t immune. “Even newly minted M.B.A.s from elite programs are struggling to find work,” Thompson notes. In parallel, law school applications are on the rise, “an ominous echo of when young people used graduate school to bunker down during the great financial crisis.”
Three Theories Behind the Decline
Thompson presents three plausible explanations.
1. A Recovery That Never Fully Arrived
“Young people are having a harder time finding a job than they used to, and it’s been going on for a while, at least 10 years,” said David Deming, a Harvard economist. The Great Recession’s ripple effects included mass layoffs and hiring freezes, hitting young workers especially hard. “After unemployment peaked in 2009, the labor market took time to heal, improving slowly until the pandemic shattered that progress.”
When recovery seemed near, inflation returned and forced the Fed to raise interest rates, cooling demand “across the economy.” White-collar sectors, particularly tech, were hit hard. “The number of job openings in software development and IT operations plunged.” Thompson cites Indeed data: “The share of jobs posted on Indeed in software programming has declined by more than 50 percent since 2022.”
2. The College Premium Is Shrinking
A second theory points to a structural shift in higher education’s value. According to research from the San Francisco Federal Reserve, “2010 marked a turning point, when the lifetime-earnings gap between college grads and high-school graduates stopped widening.” Meanwhile, “the share of online job postings seeking workers with a college degree has declined.”
Thompson clarifies: “College still pays off, on average.” However, “the upshot is a labor market where the return on investment for college is more uncertain.”
3. Is AI Replacing Entry-Level Workers?
The third possibility is more futuristic—and potentially more troubling. “The relatively weak labor market for college grads could be an early sign that artificial intelligence is starting to transform the economy.”
Deming says, “When you think from first principles about what generative AI can do, and what jobs it can replace, it’s the kind of things that young college grads have done… They read and synthesize information and data. They produce reports and presentations.”
This leads to what Thompson calls a “novel economic indicator: the recent-grad gap.” This gap, which measures the difference in unemployment between young college grads and the general labor force, has reached “an all-time low.”
That’s significant. “Today’s college graduates are entering an economy that is relatively worse for young college grads than any month on record, going back at least four decades.”
Could AI Really Be the Culprit?
“The strong interpretation of this graph is that it’s exactly what one would expect to see if firms replaced young workers with machines,” Thompson explains. Whether it’s law firms using AI for paralegal work or consulting companies realizing “that five 22-year-olds with ChatGPT could do the work of 20 recent grads,” AI may be shrinking the entry-level job market.
Further, “tech firms turned over their software programming to a handful of superstars working with AI co-pilots.” And broader macroeconomic forces could be making it worse: “Recessions can accelerate technological change,” pushing companies to squeeze more from AI rather than hire entry-level staff.
Not Everyone Is Convinced
Despite the worrying data, there’s room for doubt. “Luckily for humans, though, skepticism of the strong interpretation is warranted,” Thompson writes.
There’s little evidence of skyrocketing productivity—something that would be expected with mass AI replacement. A New York Fed survey last year found “AI was having a negligible effect on hiring.”
LinkedIn’s chief economist, Karin Kimbrough, added that she’s “not seeing clear evidence of job displacement due to AI just yet.” She believes “today’s grads are entering an uncertain economy where some businesses are so focused on tomorrow’s profit margin that they’re less willing to hire large numbers of entry-level workers, who ‘often take time to learn on the job.’”
A Caution Light for the Future
“No matter the interpretation, the labor market for young grads is flashing a yellow light,” Thompson concludes. This could signal “short-term economic drag,” “medium-term changes to the value of the college degree,” or “long-term changes to the relationship between people and AI.”
Either way, “this is a number to watch.”
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