Plain English with Derek Thompson

The Job Market for Young Grads Is Flashing Red

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Derek Thompson

About the episode

Last month, the unemployment rate for recent college grads surged to nearly 6 percent. Compared to the overall economy’s jobless rate, the unemployment rate for recent grads is higher now than in any month on record, going back at least four decades. Business school grads are struggling, too. Last year, The Wall Street Journal reported that elite MBA programs saw that their most recent classes had “worse job-placement outcomes last year than any other in recent memory.”

What’s going on? Today’s guest is David Deming, an economist at Harvard who studies education and the future of work. We walk through some plain-Jane theories about the weakening labor market for young college grads. But then, as you’ll hear, the conversation expands to consider the coming storm of AI—and how artificial intelligence is changing education and the workforce for young people.

To read more on this topic, check out Derek’s Atlantic column from last week.

If you have questions, observations, or ideas for future episodes, email us at PlainEnglish@Spotify.com.

 

Summary

  • In the following excerpt, Derek and David Deming explore why the job market for recent college graduates has declined and answer a central question: Is college still worth it?

    Derek Thompson: So the task before us today is to solve an economic mystery. According to the New York Fed, the labor market for young college graduates has “deteriorated noticeably” in the last three months. David, what do you think is the most plain vanilla explanation for why this is happening?

    David Deming: Yeah, so I think there are two explanations that are plain vanilla. One of them, I would say, has some credence. I would say, if you push me, this is the most likely explanation. And one [of them] I think a lot of people say but isn’t true.

    So the first explanation is where we are in the business cycle, and where we’ve been over the past few years, is dragging down employment for new college graduates much more than for other kinds of workers. And that’s because if you think about why a company would hire a new college grad in the first place, it’s because they think about young people as investments. You hire somebody, they don’t really know how to do anything relevant on the job right now, but they’re smart. They have a general tool kit: They can write pretty well, they can read and synthesize information, they can communicate. And so you figure, “I’ll train them up, and in a few years, they’ll be worth it, worth the investment.”

    And so when times get really uncertain, as they have been over the past few months, businesses pull back on capital investment. They’re also going to pull back on investment in young college graduates because they think about them like capital. Like, I hire a lump of clay, mold it into something useful, a young college grad, and those are just risks and time horizons that I’m not willing to invest in right now.

    And so I think there really is something to that, Derek. There’s been a longer-term trend in deteriorating conditions for young college grads. That doesn’t explain all of the last few months, but I think there’s actually been a lot of economic uncertainty in the U.S. and around the world going back to the pandemic and even a bit earlier. [There are] lots of things going on, I think, making businesses a little more hesitant to hire young college grads. So that’s boring explanation no. 1 that I think has some truth to it—a lot of truth to it.

    Boring explanation no. 2 is that college doesn’t pay anymore. And I just think that’s not correct. I think if you look at the college wage premium, it is flat over the last few years, but that’s mostly because wages are so high—which is a good story—for non-college grads. So it’s not that college grads are doing worse; it’s that people without a degree are doing very well. The labor market is tighter than it’s been in a long time, and that’s really helped out workers at the bottom of the wage distribution much more.

    The other thing is that all college grads, so people who are not just starting out but in their 30s and 40s, are still doing really, really well. And in general, the college wage premium, meaning the earnings premium you get for having a degree, actually increases. It almost doubles over the course of somebody’s career. And so what we’re really seeing in the labor market right now is not bad conditions for college grads overall, just bad conditions for new college grads. So I don’t really think that’s the story either.

    Thompson: I’m going to do one more beat on this question of “Is college worth it?” because it’s a question that I see in financial news sometimes, in op-eds sometimes. It’s like a very popular hot take, especially from, ironically, college graduate pundits who weirdly like to punch at their own side and suggest that the future will belong to people who skip college. And they’re starting to reevaluate the degree to which college will matter at all in a world where electricians’ salaries will far surpass, say, software programmers’.

    One more time, just looking at the data that we know today, without being able to guess at the data that’s available in 2030, is there any evidence suggesting that the value of a college degree has significantly deteriorated in the last few years?

    Deming: It has deteriorated only because it was such a good bargain in the 1990s and 2000s. It’s not that it’s a bad investment in an absolute sense; it just hasn’t been as good as it was. And that’s actually, Derek, because many more people are going to college. So between people ages 25 to 29, so late 20s, the share of people with a bachelor’s degree was 30 percent in the years right before the Great Recession, and it’s now 40 percent. So we have a third more people getting degrees than were getting them 20 years ago. And most of that increase has come from people attending the kinds of schools that have expanded a lot, which are usually less selective public universities.

    And so part of this is just we’re victims of our own success. We’re sending many more people to college. Some of them maybe aren’t learning as much as if they went to more selective schools, and that’s dragging down the overall college wage premium, but for any individual who’s thinking about whether they should make this decision to go to college, it’s still by and large a very good decision. It’s not risk-free. Not everybody benefits. But if you think about it as “Is this an investment, and what is the return on it?” you’re getting a return that far exceeds returns in the stock market, returns on buying a house, returns on starting a business. It’s just a good investment for people to make, and it pays off over the course of a lifetime.

    So that’s still true. It was true 20 years ago, and it’s still true today. Obviously we never know what the future holds, but it’s still true today.

    Host: Derek Thompson
    Guest: David Deming
    Producer: Devon Baroldi