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KEY TAKEAWAYS
- Recent college graduates are experiencing the largest increase in unemployment among all labor groups, mainly due to a slowing labor market.
- AI-related job requirements have disproportionately affected young workers, creating skill barriers to entry-level positions.
The biggest factor keeping the unemployment rate high for young workers is a symptom of the business cycle, according to a recent report from the Federal Reserve Bank of St. Louis.
The U.S. labor market has slowed significantly from its 2023 peak, with inflation and economic uncertainty discouraging employers from hiring. The labor market has generally entered a “low-fire, low-hire” phase, and recent college graduates are especially struggling. Experts have blamed the rise of AI and remote work for blocking out these young workers from entry-level jobs.
Why This Matters
Finding a job post-graduation is important to recent college students, the majority of whom borrowed student loans and must begin repayment six months after graduating.
The St. Louis Fed found that slowing labor market trends have directly led to a 2.2 percentage-point increase in the unemployment rate for recent college graduates. For young workers aged 18 to 24 with no more than a high school diploma, the slowing labor market has led to a 1.23 percentage-point increase in the unemployment rate. Older workers have fared the best, with a 1.1 percentage-point increase.
“Since April 2023, hiring has slowed, and young workers, especially new entrants, have borne the brunt of that softening,” St. Louis Fed researchers wrote. “AI adds an additional headwind at the point of labor market entry, particularly for recent college graduates, but its effects remain smaller than those of the broader decline in job openings.”
Although not the main factor, AI is contributing to a meaningful increase in the unemployment rate among young workers. Specifically, the St. Louis Fed found that the increase in job postings requiring AI skills is cutting out more young workers.
Other studies back up this conclusion. Earlier this year, a survey by the National Association of Colleges and Employers found that more than a third of employers require their entry-level workers to have AI skills. The popularity of this sentiment has grown three times compared to last fall.
According to the St. Louis Fed, recent college graduates have experienced a 1.68 percentage-point increase in their unemployment rate due to AI-related labor market changes. That is more than five times the impact for workers aged 25 to 64 and eight times higher than for workers aged 18 to 24 with no more than a high school diploma.
Jobs for college graduates are generally more exposed to AI than trade or hands-on occupations. Recent college graduates have struggled to find employment as AI is increasingly incorporated into jobs, raising the skill requirements, St. Louis Fed researchers said.
Additionally, the majority of college students say their institutions are not effectively incorporating AI into degree programs, creating a skills gap upon graduation.
Read the original article on Investopedia
