It’s official: America’s economy is in decline. Economists with the National Bureau of Economic Research announced yesterday that the United States economy, thanks to COVID-19, entered a recession in February, ending its longest period of economic expansion in 166 years.
Although very few Americans’ will emerge from this crisis with their financial situations unscathed, I am a university professor, so I think a lot in particular about the economic futures of the students that come in and out of our institutions of higher learning. In light of the economic contraction we’ll likely face over the next couple of years, many of the nation’s newly minted college grads are concerned that they are entering a hostile job market that will leave them unemployed for months, underemployed for years, and, in the long run, less competitive due to “skills obsolescence:” In 2021, after all, the class of 2021 will have more up-to-date skills than the class of 2020, and in 2022, the class of 2022 will have more up-to-date skills than the classes of 2020 and 2021.
If the past is prologue, then they’re right to worry.
The Great Recession of 2007-2009 gives us some idea of what the future might hold for the college graduates of the next couple of years. A recent paper by the economist Jesse Rothstein reveals that the young people who graduated just after the Great Recession of 2007-2009 experienced significant economic setbacks from which they still have not completely recovered. These setbacks were not due merely to the immediate shocks that came from the depressed job market of 2010: They continue to face disadvantages in the job market to this day, which is an economic phenomenon that labor economists call scarring.
If history is a reliable guidepost, the Class of 2020 (along with graduates over the next couple of years) should also expect significant struggles: Although 10% of recent graduates may face unemployment in the short term, their more likely fate is underemployment. According to Jaison Abel and Richard Dietz’s research on employment patterns following the Great Recession, our new college grads are likely to face a job market in which fewer of the jobs that are available (compared to the pre-COVID era) will require a college degree. As many as 50% of recent college grads may confront this reality. And 10% of them might find that their first jobs out of college are so-called “low-skilled service jobs” that tend to pay minimum wage. Although we were wrong to catastrophize that the college students who graduated after the Great Recession would all be forced to take jobs as baristas in cool coffee shops, some did, in fact, become baristas.
If there is a bright side to be found in any of this, it’s in the fact that underemployed college graduates will still probably make more money than non-college graduates who work in the same job categories. Even among the underemployed, a college degree will fetch higher wages.
Nevertheless, the economic disadvantages for the class of 2020 and beyond are likely to be substantial and long-lasting. Indeed, a 2018 analysis from Boston College’s Center for Retirement Research, based on data from the aftermath of the Great Recession, suggests that the Class of 2020 should brace itself for significant student debt and for jobs that bring lower wages and fewer fringe benefits. These economic disadvantages may persist long enough to discourage them in their late 20s and early 30s from marrying and from buying their first homes. And they’re really going to need to pay attention to their retirement savings.
Not every group of college graduates will suffer this fate, of course. In fact, how well our recent grads endure the COVID-19 recession is likely to depend greatly on the fields in which they majored. Math, physics, engineering, education, and nursing majors will need to worry less than most about underemployment or employment in low-skilled service jobs. Those who majored in criminal justice, performing arts, leisure and hospitality, anthropology, or art history, on the other hand, may be about to encounter some stiff economic headwinds.