The class of 2020 got the short end of the stick in a variety of ways. Their senior year of college was cut short due to the Covid-19 pandemic and they graduated — often over Zoom — into a struggling economy.
Four years later, though, many of those graduates and those who finished school in the years following are faring pretty well career-wise. Just over 65% of recent college graduates — workers ages 21 to 24 — are employed and not enrolled in further education as of March 2024, according to a recent study by the Economic Policy Institute. That’s above the pre-pandemic level of 64.3% in February 2020.
But not all young graduates are thriving. EPI found 1 in 10 young graduates were “idling” as of March 2024, meaning they were neither employed nor going back to school.
It’s normal for recent college graduates to take time to figure out their next steps or look for work. But 2020 graduates started with a disadvantage. Workers who graduate during economic downturns can experience long-lasting impacts on their career and earnings, EPI says.
“The economic conditions at your labor market entry [point] matter a lot,” Hannes Schwandt, associate professor of human development and social policy at Northwestern University, tells CNBC Make It. EPI cited Schwandt’s research on recession labor markets and their long-term impacts in its study.
“In general, when recessions come and economic conditions worsen, companies stop hiring before they start firing — they hire fewer people,” he says. “That means that people who are entering the labor market are impacted almost more than other parts of the labor market.”
And those who experience the affects of graduating into a recession may take a while to bounce back.
A ‘very slow catch-up process’
You might expect a long-lasting recession to have far-reaching effects on those who enter the labor market during one, like millennials who graduated during the Great Recession. But even in the case of a short recession like the 2020 downturn, it may take years for graduates to catch up, according to Schwandt’s research.
“We see that there’s continued income losses and for those with the best grades who have higher potential, they fully catch up only after maybe eight to 15 years,” Schwandt says. “[It’s] a very slow catch-up process.”
In one study examining outcomes of workers entering the labor market between 1976 and 2015, Schwandt and his collaborator, Till M. von Wachter, found those who entered the workforce during periods of high unemployment saw a substantial impact on their earnings for 10 years.
“Our findings imply that for a moderate recession that raises unemployment rates by three points, the loss on cumulated earnings is predicted to be on the order of 60% of a year of earnings,” the researchers wrote.
Why the economy you graduate into matters
Not everyone who graduates into a recession will struggle their whole lives, Schwandt says. But careers and salaries are often cumulative. Ideally, you want to start off with a good job that helps build your skills and experience so you can get promoted or otherwise keep leveling up in your career.
Since recessions can spell difficulty for small and newer companies and hiring slowdowns for bigger companies, the result is often fewer and weaker job prospects for entry-level workers, Schwandt says. Those who graduate into a strong job market and overall economy may be more likely to get high-quality jobs right out of school that help propel their careers in ways those graduating into a recession may not experience.
“If you start with a [high-quality] job, you will continue on a better trajectory compared to starting at a lower-quality job like smaller firms with less pay and less growth and less learning,” Schwandt says.
The share of recent college grads who were idling in spring 2024 is lower than the pre-pandemic peak. But it has been steadily growing since 1989, according to EPI. Schwandt suggests that could be due to the fact that college graduation rates have increased 1% annually for the last decade, according to the Education Data Initiative.
“In the past, [a college degree] was like a signal [that] you are an advantaged group and you will be the first pick [for] jobs,” Schwandt says. “Now this pool is much larger, and there will also be a larger share of people who might find it more difficult to find a job.”
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