Recent graduates face an unusually weak US labour market as unemployment gap widens
Key Takeaways
- •Recent graduates face a 5.7% unemployment rate compared with 4.1% for all workers, reversing a historical pattern from 1990 through 2020 where graduates consistently had stronger job prospects than the broader workforce.
- •Post-pandemic over-hiring is likely the dominant factor behind weak entry-level hiring, as companies currently have little need to add junior staff.
- •Artificial intelligence may be accelerating the decline in graduate employment by automating tasks traditionally assigned to young professionals in white-collar roles, though the trend began before ChatGPT launched in November 2022.
- •National Bank Financial considers the graduate unemployment series a potential early warning signal for broader labor market softening, even as it maintains an optimistic outlook on the overall labor market.
- •Persistent weakness in entry-level hiring could provide the Federal Reserve with additional evidence that the labor market is softer than headline unemployment figures suggest, potentially influencing policy under its dual mandate.
The US labour market debate is sharply divided. Consumers report that hiring conditions are the worst since the mid-2010s, excluding the pandemic period. Yet initial jobless claims data suggests companies remain reluctant to lay off workers. Richmond Federal Reserve President Thomas Barkin reiterated this week that the current environment is best described as a "low-hire, low-fire" economy.
Stepping back, the pain is most concentrated among those attempting to land their first professional role.
In National Bank of Canada's weekly Hot Chart, economist Jocelyn Paquet highlights that the unemployment rate for recent graduates now stands at 5.7%, compared with 4.1% for all workers. While that gap may appear modest, historical context underscores its significance: from 1990 through 2020, recent graduates consistently enjoyed stronger job prospects than the broader workforce. That long-standing relationship reversed after the pandemic and has continued to widen.
Paquet identifies two likely drivers. The first is straightforward and probably the dominant factor: companies over-hired during the post-pandemic scramble and currently have little need to add entry-level staff. The second factor is artificial intelligence. AI is particularly effective at automating the kinds of tasks traditionally assigned to young professionals in white-collar roles, raising the possibility that some companies have quietly scaled back campus recruiting.
National Bank Financial (NBF) is careful not to overreach in its analysis. The deterioration in graduate employment prospects began before ChatGPT launched in November 2022, meaning AI alone cannot explain the trend. However, the technology may be acting as an accelerant, and the timing of the widening gap remains a concern.
The implications matter for markets. Historically, businesses slow hiring before they begin cutting headcount. NBF positions itself in the optimist camp regarding the broader labour market, and the author of this analysis shares that leaning — but the graduate unemployment series warrants close monitoring as a potential early warning signal. The latest non-farm payrolls report offered little encouragement.
For the Federal Reserve, this adds another data point suggesting the labour market is weaker than headline figures indicate. Under its dual mandate of maximum employment and price stability, persistently weak entry-level hiring could reinforce the case that the labour market is softening beyond what the overall unemployment rate captures. Taken alongside pressures in housing and inflation, the outlook for the next generation of workers gives cause for concern.
