COVID-19's Influence on the Labor Market for the Class of 2020
With May just around the corner, college graduation season is about to begin. However, instead of graduates meeting in large auditoriums with their class and families planning parties as in previous years, 2020 graduations will be more subdued. Most colleges shut down in-person classes in mid-March, transitioning to online teaching, as the COVID-19 pandemic began to spread. Some colleges and universities have moved graduation ceremonies online or significantly limited attendance to only the students and faculty with social distancing requirements being honored.
Not only has the pandemic altered how this year’s graduates will celebrate the end of their college careers, it has also cast a shadow of uncertainty on their future job prospects.
Entering the Unknown
Prior to the pandemic, the unemployment rate reached 3.5 percent in February, the lowest unemployment rate reported in the U.S. in over 50 years. First-time job seekers with a college degree expected to enter a labor market full of employment opportunities. This outlook has all changed.
The current downturn caused by COVID-19 has left many college graduates in limbo. Some grads have reported having their job offers rescinded. As of April 24, the National Association of Colleges and Employers (NACE) reported that about 41% of employers it surveyed had revoked employment offers, up from the 36% of employers who had revoked offers as of April 3. Twenty-two percent of respondents in the April 24 survey were still considering this option.
When Will the Labor Market Recover?
Ultimately, the lasting impact on the careers of this year’s college graduates is still unknown. The longer social distancing measures continue with no available vaccine, the more painful and prolonged the economic recovery may be. ThinkWhy economists and analysts forecast a U-shaped recovery as the most likely scenario, with the trough in year-over-year job loss to occur in Q3 2020. Job gain is expected to return in Q2 2021. With job growth remaining negative from Q2 2020 to Q1 2021 and the unemployment rate ranging from 18% in Q2 2020 to a peak of 20.5% in Q3 2020 before falling to 11.8% in Q1 2021, the employment opportunities available to first-time job seekers will be limited and possibly lower their lifetime earnings.
Studies have shown that those graduating in a recession often start their careers at lower wage levels than existed just before the recession, resulting in a lower level of earnings for much of their working lives. A 2019 study by the Washington Center for Equitable Growth found that even in 2019, young workers who had graduated from college between 2007 and 2009 during the Great Recession, still had lower levels of earnings and employment compared to other graduating classes who had already established their careers. Those other classes had returned to their pre-Great Recession employment levels by 2014. Great Recession-era graduates also earned 2% less in the early parts of their careers compared to previous graduating classes, affecting their overall earning potential.
Colleges are aware of the difficulty that many new grads without much job experience are facing in the current labor market.
Joseph Du Pont, the associate vice president of career services at Boston College, said in a WGBH interview, “We have a wide array of services for everyone, but seniors are the ones who are graduating in a particularly tough time and they've been hit by the impact of COVID-19 and also a recession. Assuring them that we'll work with them well into the future has given them a little bit of a sense of comfort in that someone's watching out for them.”
Young workers will have a tough road ahead of them. Despite the difficulties, research still shows that college graduates routinely earn more over their lifetimes than workers without degrees. The difference can be as much as 75% or $30,000 more, per the Federal Reserve Bank of New York. The start of these graduates’ careers may require them to be more creative in reaching their long-term goals, as they navigate a labor market filled with uncertainty and limited employment opportunities. However, those who have kept up in-demand skills will be ready to take advantage of the chances offered in the eventual economic recovery.
ThinkWhy continuously monitors and forecasts industries and MSAs to measure the impact on the labor market. Stay current with us. We are here to support organizations and provide insights during the economic downturn as well as the recovery phase.