Has the underemployment rate topped out?

by Grace

Has the trend of rising underemployment rates for new college graduates finally turned a corner?

20150521.COCCollegeGradUnderemploymentChart1

While unemployment rates improved over the last few years, underemployment rates have only started to drop more recently.

The unemployment rate for recent college graduates began to fall in 2011, and it has continued to do so—with a hiatus during 2013—ever since. However, aside from a brief dip in early 2011, the underemployment rate continued to climb well into 2014, rising to a level of more than 46 percent. This divergence between falling unemployment and rising underemployment between mid-2011 and mid-2014 suggests that more college graduates were finding jobs during this time, just not necessarily good ones. The steady growth of non-college jobs, coupled with the relatively soft demand for college graduates during this three-year period, appears to have forced many recent college graduates to take jobs not commensurate with their education. More recently, though, the tide has turned. With the demand for college graduates rising at a solid clip since last summer, underemployment has also finally started to come down. Since last June, the underemployment rate for recent college graduates has fallen by about two percentage points, to 44.6 percent.

The underemployment rate is still historically high.

While these trends are no doubt good news for recent college graduates, it is important to keep the gains in perspective. As we have shown before in this post and this article, the underemployment rate for recent college graduates remains quite high by historical standards. At 44.6 percent, we estimate that nearly half of this group is working in jobs that typically do not require a college degree—a rate that is much higher than when underemployment hit a trough of around 38 percent in 2000. And while the demand for college graduates appears to be picking up, significant labor market slack remains, so continued strong growth in the demand for college graduates may well be necessary to make a more serious dent in the underemployment rate.

The Washington Post has an optimistic view.

Why the era of college grads working at restaurants and cafes is coming to an end

For now, I’ll wait and see.

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Jaison R. Abel and Richard Deitz, “The Class of 2015 Might Have a Little Better Luck Finding a Good Job”, Liberty Street Economics, May 15, 2015.

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