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Underemployment for recent grads worse today than in early 2000s

The underemployment rate for recent college graduates is higher today than it was in the early 2000s. More people are working in jobs they’re overqualified for in order to make ends meet, taking jobs that don’t require a college degree. That’s despite a decade of low unemployment and economic growth and stock market highs.

As of March, the underemployment rate for workers aged 22 to 27 stands at 41.3%, according to the Federal Reserve Bank of New York.

FILE- In this Jan. 3, 2019, file photo an employment sign hangs from a wooden fence on the property of a McDonald's restaurant in Atlantic Highlands, N.J. On Friday, Feb. 1, the U.S. government issues the January jobs report, which will reveal the latest unemployment rate and number of jobs U.S. employers added. (AP Photo/Julio Cortez, File)
A McDonald's restaurant in Atlantic Highlands, N.J. (AP Photo/Julio Cortez, File)

The fact that there are millions of recent graduates opting for jobs that don’t require a bachelor’s degree is often masked by rosy job market figures – the U.S. unemployment rate fell to 3.6% in April. In the early 2000s – during the height of the dot-com bust and ensuing bear market – the underemployment rate for recent college graduates was 38.5% (in November 2002), while the unemployment rate was 5.9% that same month.

underemployment rates for college graduates
Source: Federal Reserve Bank of New York

Underemployed for higher pay

A major reason why recent college grads take jobs that don’t require a college degree is because they’re seeking higher pay. Glassdoor chief economist Andrew Chamberlain says research has shown that these recent graduates are going after jobs in the skilled trades and e-commerce because those jobs pay more.

“These are jobs where employers today are facing labor shortages and pay is rising fast for many of these blue-collar jobs,” he says.

occupation for underemployed college graduates
Source: Federal Reserve Bank of New York

Increased competition

More people who are entering the labor force today have a college degree compared to those who did back in the 1990s, making it harder for workers to distinguish themselves simply by having one.

“That’s becoming the baseline,” says Chamberlain. “That’s part of the reason why we’re seeing this higher [underemployment] rate.”

Colleges have also been slow to match the skills employers want as every field becomes more technical, says Chamberlain. In order to overcome the challenge of transitioning from school to a well-paying white-collar job, young graduates are compelled to start out underemployed.

“That’s often the way careers go for young people,” says Chamberlain. “You just do anything to get in the door, and then once you’re inside you have a chance to informally network and find your real job inside the company.”

For those opting to stay in school to get a degree, Chamberlain recommends doing an internship every year in college because it improves graduates’ chances of working in a job related to their major.

Impact on student loans

With about one million people defaulting on student loans for the first time each year, being underemployed carries real risks for workers if they’re not earning enough to make their monthly payments. “Student loan defaults are almost always caused by people…not being able to get a decent-paying job after school,” Chamberlain says. “Being underemployed would be one of those reasons.”

Fortunately, as the labor market continues to tighten, the underemployment rate is falling steadily.

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