AI Isn’t to Blame if Your College Grad Can’t Find a Job. Look to This Trend Instead.

An empty office space in San Francisco. (David Paul Morris/Bloomberg)

The idea that artificial intelligence is stealing jobs from recent college graduates embarking on their first job search might seem like a plausible dystopian narrative, but the reality isn’t quite that alarming.

Instead, a bigger factor for higher unemployment among recent college graduates is a skills mismatch, says Carrie Freestone, an economist at RBC. The more-popular areas of study among college graduates aren’t what employers are looking for—and they’re not filling the gaps left by retiring Americans.

The evidence for AI being responsible for the weaker college grad labor market in recent years is “thin,” writes Will Raderma n, an employment policy analyst at the Niskanen Center, a think tank. “It’s possible that this will change in the future, but for now it’s more likely that longer-term structural changes to the labor market and broader labor dynamics are the relevant causal factors.”

The unemployment rate among recent college grads was 4.8% as of the end of June, according to the Federal Reserve Bank of New York. That’s higher than the overall unemployment rate of 4.2%, but a notable decline from the 5.8% rate hit during the first quarter.

The challenges faced by graduating seniors looking for work accelerated after the Covid-19 labor shortages eased. Some 85% of the rise in the unemployment rate has been driven by younger workers since mid-2023, according to an analysis by Matthew Martin, senior U.S. economist at Oxford Economics.

Yet implementation of generative AI in the workplace was still tentative at that point. Only 3.7% of firms reported using AI in September 2023, according to the initial Business Trends and Outlook Survey from the Census Bureau. ChatGPT only hit the public in November 2022.

Adoption has jumped since, but only 9.4% of U.S. businesses nationwide used AI as of July, including machine learning, natural language processing, virtual agents, and voice recognition tasks, according to the census survey. The information sector—which includes technology firms and broadly employs about 2% of U.S. workers—has the highest uptake.

That signals AI could be playing a role in hiring decisions at companies leading the charge in implementing this technological advance, but it accounts for only a small portion of the labor force.

Instead, we need to compare the pool of recent graduates to hiring trends. Nearly half of the degrees earned by the class of 2025 are concentrated in business, social sciences, and computer science, according to data from Handshake, a campus recruitment website—echoing the trend for the classes of 2024 and 2023.

The problem is that the majority of job openings aren’t in those disciplines. The jobs that opened last year as workers over the age of 55 departed were service-sector work such as janitors, maintenance workers, personal-care aides, and construction personnel, according to BLS data analyzed by Barron’s.

But many of those occupations don’t require a degree. Instead, compared with a year ago, job listings were down in June in four out of five of the top industries that hire new graduates, including information technology, engineering and construction, healthcare, and financial services, according to Revelio Labs data. In the final sector—education—job ads were up 12.8%.

More broadly, employers have responded to economic uncertainty this year by halting hiring and cutting costs. Even bringing on entry-level candidates is expensive these days. The projected average salary for the class of 2025 is $68,680, according to the National Association of Colleges and Employers. Adjusted for inflation, that’s up about 3.5% from 2021.

So, is it any real surprise that there were over 35% fewer entry-level job openings in June compared with January 2023? That’s equal to more than 100,000 fewer new monthly job postings, Revelio found.

Secular headwinds and the speed of AI adoption suggest that this trend could get worse before it gets better. Get ready for weaker summer employment reports.

Write to Megan Leonhardt at megan.leonhardt@barrons.com