Meet the Author

Jonathan James |

Author

Jonathan James

Jonathan James is a former research economist in the Research Department.

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Meet the Author

Christopher Vecchio |

Research Analyst

Christopher Vecchio

Christopher Vecchio is a research analyst in the Research Department of the Federal Reserve Bank of Cleveland. His primary interests include development economics, international economics, and the economics of terrorism.

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06.21.13

Economic Trends

Underemployment, College Graduates, and the Recession

Jon James and Christopher Vecchio

The exceptionally high unemployment rate of recent years indicates that the U.S. workforce has been persistently underutilized. With fewer individuals working than would otherwise be, or those with jobs working fewer hours than they would prefer, the economy is producing at a level far below its potential. This underemployment impacts current standards of living, but it could also have long-lasting effects on workers and the economy.

College graduates in general have fared better than those without a college degree in the conventional measures of underemployment. The unemployment rate for recent college graduates ages 25–29 is currently below 6 percent. This is less than half of the unemployment rate for workers in that age group without a college degree (around 13 percent). Similarly, college graduates have experienced only a mild reduction in full-time employment since the recession, while those with no college degree have experienced a far greater drop-off. Male college graduates, for example, went from around 91 percent working full time before the recession to around 88 percent now, a 4 percent drop. Meanwhile, males with no college degree saw a greater drop, from about 90 percent working full time to 83 percent.

While college graduates have been less susceptible to high unemployment or major reductions in work hours, they face a very different—but potentially equally damaging—form of underemployment in a slack labor market. The problem for these workers, especially those just entering the workforce, is that they may be more likely to take jobs in which they are overqualified. By taking jobs that do not require a postsecondary education, they leave the benefits of their college degrees unused and are likely producing at a level below their full potential.

Comparing the top occupations for recent college graduates in 2005 to the top occupations in 2011 provides some evidence that in the last few years, college graduates may have been more likely to take jobs in which they are overqualified. While the set of top occupations has remained the same across the years, there has been some noticeable change in the rankings. For example, retail sales—where a sizeable fraction of workers aged 25–29 do not have a college degree—has climbed from 12th to 7th. Similarly, waiter and waitress occupations (not on the list) has climbed from 23rd to 16th.

Most Popular Occupations for College Graduates

Rank
2005
2011
1 Elementary and middle school teachers Elementary and middle school teachers
2 Accountants and auditors Accountants and auditors
3 Postsecondary teachers Registered nurses
4 Registered nurses Postsecondary teachers
5 Miscellaneous managers Miscellaneous managers
6 Secondary school teachers Computer software engineers
7 Computer software engineers Retail salespersons
8 First-line supervisors of retail sales workers Customer service representatives
9 Social workers First-line supervisors of retail sales workers
10 Lawyers, judges, and paralegals Secretaries and administrative assistants
11 Sales representatives, wholesale and manufacturing Social workers
12 Retail salespersons Secondary school teachers
13 Secretaries and administrative assistants Counselors
14 Customer service representatives Lawyers, judges, and paralegals
15 Computer scientists and systems analysts Designers

Source: American Community Survey.

These trends tend to corroborate popular stories about the recent experiences of college graduates, but are these experiences representative of the typical college graduate? One way to answer this question is to classify each occupation as either a high-school type job or a college-type job. In this analysis, we will classify an occupation as a college-type job if the majority of the workers in that occupation (greater than 50 percent) have a bachelor’s degree or more. We can then evaluate whether the probability that a college graduate takes a college-type job has decreased during the recession.

Before the recession, about 62 percent of recent college graduates aged 25–29 worked in majority-college-graduate occupations. Conversely, this means that 40 percent of college graduates worked in occupations where the majority of workers are not college graduates. If slack labor market conditions forced college graduates to take jobs typically held by those with no college degree, then we would expect the share of college graduates working in majority-college-graduate occupations to fall. However, no such decline has occurred, with the share in majority-college-graduate occupations remaining relatively steady around a little more than 60 percent over the last decade.

There appears to be little evidence that the economic downturn produced any meaningful change in the composition of the types of jobs available to college graduates. However, in evaluating the underemployment of college graduates, one could ask if the pre-recession mix of jobs held by college graduates is a good benchmark of efficiency to begin with. Many college graduates work in occupations that employ substantial numbers of noncollege graduates, which has been true for at least the last decade, and it is unclear whether such an allocation represents an underutilization of these workers’ college skills.

Going forward, as the share of the population with college degrees continues to increase, it will become even more important to not only understand the extent to which these skills are being utilized or underutilized in the economy, but also policies that can encourage a better allocation of these skills.