FRBSF ECONOMIC LETTER

2011-09 March 21, 2011 ACSIP NOTE

Recent College Graduates and the Job Market 

BY BART HOBIJN, COLIN GARDINER, AND THEODORE WILES

In the recent recession and recovery, the unemployment rates, part-time employment trends, 

and earnings growth of recent college graduates have closely mirrored the patterns they 

displayed during the cyclical recession of 2001 and the subsequent jobless recovery. Recent 

college graduates are typically not subject to structural frictions that can contribute to weak 

labor markets, such as mismatches between the skills of job seekers and the needs of 

employers. Similarities in the labor market experiences of recent college graduates in the two 

recessions and recoveries suggest that the current high unemployment rate is primarily cyclical. 

Although the U.S. economy is recovering from the 2007–09 recession, the labor market remains weak. 

The unemployment rate was 8.9% in February 2011, down more than a percentage point from its peak in 

2009, but about four percentage points higher than before the recession. Some economists have 

concluded that this persistently high unemployment rate is due largely to structural frictions in the U.S. 

labor market rather than to weak demand for workers associated with the severe recession (Kocherlakota 

2010). Generally, such structural frictions arise from mismatches between workers and employers. A 

common example of a mismatch occurs when employers are looking for skills that are different from 

those that available workers offer. Another type of mismatch occurs when jobs are available in 

geographic regions with few qualified job seekers (see Daly, Hobijn, and Valletta 2011 and Weidner and 

Williams 2011). 

One way of testing whether such structural factors are important in the overall labor market is to 

examine a segment of the market that is not subject to these constraints. Recent college graduates for the 

most part don’t experience skill and geographic constraints because they tend to be highly educated and 

mobile (Pianalto 2010). Thus, if structural unemployment were the principal factor accounting for labor 

market weakness in this downturn, then the job market for recent college graduates would be relatively 

stronger than in a mainly cyclical downturn. In this Economic Letter, we analyze the extent of structural 

constraints on employment by comparing current trends for recent college graduates with the trends 

that prevailed during the recovery after the 2001 recession, a labor market downturn that was mainly 

cyclical in nature. We find that the labor market for recent college graduates is equally weak or even 

weaker than the overall market, just as in the 2001 recession and its aftermath. The weakness of the 

current labor market for college graduates is reflected not only in the unemployment rate for this group, 

but also in their part-time employment rate and earnings. This indicates that structural factors are of 

minor importance for current unemployment. 

Data and methods 

We use person-level micro data from the Current Population Survey (CPS), which is the source of the 

unemployment rate published by the Bureau of Labor Statistics and other aggregate labor market 
FRBSF Economic Letter 2011-09 March 21, 2011 

2 

statistics. Unfortunately, the CPS does not provide precise information on when an individual graduates 

from college. As an alternative, we consider two proxy samples of recent college graduates. The first, 

which we call the “cohort sample,” consists of all 21–23 year olds with a bachelor’s degree. Though we 

don’t know their graduation dates, we assume they recently obtained their degrees. The second, called 

the “matched graduates” sample, consists of 21–25 year olds who have a bachelor’s degree but did not 

have one 12 months before. Because of the way the CPS is constructed, we can only analyze individuals 

over time if they have continued to live in the same residence. Thus, the matched graduates sample 

includes only former students who graduated during the past 12 months and who stayed in the same 

residence, such as commuter students or those who found employment locally. We include 24 and 25 

year olds to increase the sample size. 

Of our two proxy samples, the cohort group is broader because it includes recent graduates who moved 

after they got their degree or who graduated more than a year ago. Among cohort group members who 

were in the CPS a year earlier, 70% had a bachelor’s degree and 30% did not have such a degree a year 

before. Thus, the cohort group includes individuals who have been at their jobs longer or been able to 

search longer. Because of the smaller size of the matched graduates sample, the results for the group 

tend to be more volatile than for the cohort sample. Both of these samples have advantages and 

limitations. However, both samples point to the same conclusion: the labor market opportunities of 

recent college graduates deteriorated to a similar extent in both the current downturn and the 2001 

recession and recovery. 

Economists have cited several structural factors that might be pushing the unemployment rate higher 

than would normally be expected at this stage of the business cycle. In addition to the previously noted 

mismatches, the temporary extensions of unemployment insurance (UI) benefits up to 99 weeks could 

be increasing the unemployment rate. However, the UI extensions barely affect recent college graduates 

because, as new entrants to the labor force, they generally are not eligible for benefits. Even if a graduate 

worked during college, the individual would be ineligible for UI benefits in most states if he or she 

worked part time or through work-study. 

As previously noted, recent college 

graduates are much less subject to 

structural factors, such as mismatches 

and the effects of UI extension, than 

other workers. Therefore, if structural 

factors were contributing prominently 

to the run-up of the overall 

unemployment rate, then the increase 

for recent college graduates should be 

less pronounced than that for other 

workers. Figure 1 shows this is not the 

case. During the labor market 

contraction, from the beginning of the 

recession until now, the 12-month 

moving average of the unemployment 

rate of the cohort sample bottomed out 

at 5.8% and peaked at 10.7%. The 

matched graduates unemployment rate 

Figure 1

Unemployment rate (12-month moving average)

Sources: Current Population Survey (CPS) and authors’ calculations. 

0

2

4

6

8

10

12

14

16

18

1998 2000 2002 2004 2006 2008 2010

%

Matched graduates

Overall

Cohort
FRBSF Economic Letter 2011-09 March 21, 2011 

3 

registered a minimum of 7.9% and topped out at 15.7%. Just like the labor force as a whole, recent 

college graduates have seen a near doubling of their unemployment rates. This pattern is similar to the 

labor market experience of recent college graduates during the cyclical recession of 2001. 

We also consider the time paths of the unemployment rates of the two recent college graduate proxy 

samples and the labor force as a whole during the recovery. The overall unemployment rate has fallen in 

the past few months, while both the cohort and the matched graduates unemployment rates have 

continued to rise. This reflects ongoing weakness in employment prospects, similar to what happened 

during the recovery following the 2001 recession, when the decline in the unemployment rates of recent 

college graduates also lagged the drop in the overall rate. The fall in the unemployment rates of recent 

college graduates tends to lag because much of the hiring in the early stages of the recovery involves 

employers bringing back people who previously worked for them. 

Hence, the current unemployment rate trends are reminiscent of the 2001 recession and the subsequent 

jobless recovery that continued through 2004 (Daly, Hobijn, and Kwok 2009). This holds for both the 

overall unemployment rate and for those of recent college graduates, suggesting that structural factors 

are not quantitatively important in driving the overall unemployment rate, just as they were largely 

irrelevant after the 2001 recession. 

The weakness in the labor market for 

recent college graduates is also evident 

in the case of those who do become 

employed. Figure 2 shows the 

percentages of employed cohorts, 

matched graduates, and total labor 

market participants that hold parttime jobs. Notably, the part-time rates 

for both groups of recent college 

graduates began to increase 

significantly during the current 

recession, just as they did during the 

2001 recession. This means that, of 

the recent college graduates who 

become employed, an increasing 

number took part-time jobs, a sign of 

underemployment. Since the 

beginning of the recession, the overall 

part-time employment rate increased from 16.3% to 17.8%. At the same time, the part-time rate of the 

cohort sample increased from 19.1% to 25.7%, while that of the matched graduates sample increased 

from 23.4% to 34.1%. In this dimension, college graduates have fared worse than other labor market 

participants, similar to what took place in the 2001 recession. 

So far, we have looked at recent college graduates who are unemployed or unable to find full-time 

employment. Figure 3 shows that the weak labor market has also limited the wage growth of those who 

are employed full time. The figure displays only data for the cohort group. Earnings data are available 

only for a subset of the already-small matched graduates sample, so it would be difficult to draw 

statistically meaningful conclusions. 

Figure 2

Part-time employment (12-month moving average)

Sources: CPS and authors’ calculations. 

15

16

17

18

19

20

10

15

20

25

30

35

40

1998 2000 2002 2004 2006 2008 2010

% %

Matched graduates 

(left axis)

Cohort 

(left axis)

Overall 

(right axis)
FRBSF Economic Letter 2011-09 March 21, 2011 

4 

If structural constraints were at play, 

the wage growth of a labor-force 

subgroup with general skills and high 

mobility, such as recent college 

graduates, would outperform or be in 

line with wage growth in the overall 

labor market. That’s because recent 

college graduates are more mobile and 

adaptable, and are more able to make 

the adjustments needed to take hardto-fill positions. However, recent 

college graduates are not seeing aboveaverage earnings growth. Recent 

graduates with full-time positions are 

currently making about as much as 

workers who had just graduated from 

college at the end of 2007, when the 

recession began. In contrast, earnings 

for the average worker grew 7.3 % over the same period. This drop in the relative earnings of recent 

graduates has been particularly steep in recent months, similar to what was observed in the 2001 

recession. Importantly, the relative wages of recent college graduates continued to decline during that 

downturn until well into the recovery. Since the current recovery has not yet reached a comparable stage, 

we expect continued downward pressure on the relative wages of recent graduates. 

The effect of the very weak labor market for recent college graduates is likely to go beyond their current 

employment and earnings prospects. Graduating from college during a recession has significant and 

persistent negative effects on future earnings (Kahn 2010 and Oreopoulos, von Wachter, and Heisz 

2010). Given the current weak labor market, we expect the labor market outcomes of the recent college 

graduate cohort to remain depressed well into the future. 

Conclusion 

The current labor market outcomes of recent college graduates closely mirror those observed during the 

2001 recession and the subsequent jobless recovery. This is important because recent college graduates 

are not subject to the kinds of structural factors that have been posited as the main sources of weakness 

in the overall labor market. Unemployment rates during the 2001 recession are widely recognized as 

cyclical in nature. Similarities in the experiences of recent college graduates in the labor market during 

the two recessions and recoveries are evidence that high unemployment rates in the current downturn 

and recovery are also mainly cyclical. 

Bart Hobijn is a senior research advisor in the Economic Research Department of the Federal Reserve 

Bank of San Francisco. 

Colin Gardiner and Theodore Wiles are research associates in the Economic Research Department of 

the Federal Reserve Bank of San Francisco. 

Figure 3

Median weekly earnings for full-time workers 

(Four-quarter moving average)

Sources: CPS and authors’ calculations. 

80

90

100

110

120

130

140

150

1998 2000 2002 2004 2006 2008 2010

1998:Q4=100

Cohort

Overall
1 

FRBSF Economic Letter 2011-09 March 21, 2011 

CSIP Notes are published occasionally by the Center for the Study of Income and Productivity. 

Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of 

San Francisco or of the Board of Governors of the Federal Reserve System. This publication is edited by Sam Zuckerman and Anita

Todd. Permission to reprint portions of articles or whole articles must be obtained in writing. Please send editorial comments and 

requests for reprint permission to Research.Library.sf@sf.frb.org. 

References 

Daly, Mary, Bart Hobijn, and Joyce Kwok. 2009. “Jobless Recovery Redux?” FRBSF Economic Letter 2009-18 

(June 5). http://www.frbsf.org/publications/economics/letter/2009/el2009-18.html

Daly, Mary, Bart Hobijn, and Rob Valletta. 2011. “The Recent Evolution of the Natural Rate of Unemployment.” 

FRBSF Working Paper 2011-05. http://www.frbsf.org/publications/economics/papers/2011/wp11-05bk.pdf

Kahn, Lisa B. 2010. “The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy.” 

Labor Economics 17(2), pp. 303–316. 

Kocherlakota, Narayana. 2010. “Inside the FOMC.” FRB Minneapolis president’s speech delivered August 17 in 

Marquette, MI. http://www.minneapolisfed.org/news_events/pres/speech_display.cfm?id=4525

Oreopoulos, Philip, Till von Wachter, and Andrew Heisz. 2006. “The Short- and Long-Term Career Effects of 

Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates.” NBER 

Working Paper 12159. http://www.nber.org/papers/w12159

Pianalto, Sandra. 2010. “The Recovery and Monetary Policy.” FRB Cleveland president’s speech delivered 

December 2 in Oberlin, OH. 

http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2010/Pianalto_20101202.cfm

Weidner, Justin, and John Williams. 2011. “What Is the New Normal Unemployment Rate?” FRBSF Economic 

Letter 2011-05 (February 14). http://www.frbsf.org/publications/economics/letter/2011/el2011-05.html

Recent issues of FRBSF Economic Letter are available at 

http://www.frbsf.org/publications/economics/letter/

2011-08 Life-Cycle Shocks and Income

http://www.frbsf.org/publications/economics/letter/2011/el2011-08.html

Couch / Daly / Gardiner

2011-07 Long-Run Impact of the Crisis in Europe: Reforms and Austerity Measures

http://www.frbsf.org/publications/economics/letter/2011/el2011-07.html

Nechio 

2011-06 Could We Have Learned from the Asian Financial Crisis of 1997-98?

http://www.frbsf.org/publications/economics/letter/2011/el2011-06.html

Hale 

2011-05 What Is the New Normal Unemployment Rate?

http://www.frbsf.org/publications/economics/letter/2011/el2011-05.html

Weidner / Williams

2011-04 Do Initial Claims Overstate Layoffs?

http://www.frbsf.org/publications/economics/letter/2011/el2011-04.html

Hobijn / Sahin

2011-03 Estimating the Macroeconomic Effects of the Fed’s Asset Purchases

http://www.frbsf.org/publications/economics/letter/2011/el2011-03.html

Chung / Laforte / 

Reifschneider / Williams 

2011-02 Consumers and the Economy, Part II: Household Debt and the Weak U.S. 

Recovery 

http://www.frbsf.org/publications/economics/letter/2011/el2011-02.html

Mian / Sufi 

2011-01 Consumers and the Economy, Part I: Household Credit and Personal Saving 

http://www.frbsf.org/publications/economics/letter/2011/el2011-01.html

Glick / Lansing

2010-38 Risky Mortgages and Mortgage Default Premiums

http://www.frbsf.org/publications/economics/letter/2010/el2010-38.html

Krainer / LeRoy