“The Job Market for Young People Is Brutal”

In the following excerpt, Derek talks to Rogé Karma about the unique labor market that young grads are entering today.

Derek Thompson: So today’s podcast is a bit of a mystery, and the mystery is why the labor market sucks for young people. Before we get into guesses and theories and diagnoses, I want to just establish some baseline facts here. What are the facts about young college graduates and unemployment today?

Rogé Karma: So what you have to understand is that historically, young college graduates in their 20s have had a lower unemployment rate than the rest of the workforce, and usually a much lower unemployment rate than the rest of the workforce. It makes sense. They’ve just spent four years soaking up all this education; they’re relatively cheap labor. So usually, they get much better employment prospects coming out of school. Recently, that has flipped.

So ever since about 2022, the unemployment rate for young college graduates has actually risen nearly twice as fast as the rest of the labor force and currently is significantly higher. So the unemployment rate right now for, again, 22- to 27-year-old college graduates is about 6 percent, close to 6 percent, which is unusually high, even as the overall unemployment rate is close to 4 percent, which is near a 50-year low.

Thompson: This is happening during a period where unemployment is low, as you said, and hiring rates have basically declined every single year since what, 2022, roughly?

Karma: Yeah. Since 2022.

Thompson: This is a phenomenon that you have called in The Atlantic the Big Freeze. What is the Big Freeze?

Karma: The Big Freeze is essentially what happens when a labor market grinds to a halt. So the statistic that actually blows my mind here is that even though the unemployment rate, again, is near 50-year lows, the hiring rate, the rate at which people are getting hired for new jobs, has dropped to its lowest level since 2010.

When unemployment was at or near 10 percent, this was the depths of the Great Recession. We are now experiencing, by the unemployment rate, what looks like a great labor market, and yet employers aren’t hiring. Therefore, employees aren’t able to find new jobs. This is basically a labor market that is frozen in amber.

Thompson: It’s like a hotel with full occupancy. If you’re in the hotel, you’ve got a room, it’s cozy, everything is working fine, but if you’re locked out of the hotel, there’s no vacancy.

Karma: Exactly.

Thompson: So it’s really weird because typically economies that are healthy are like a game of musical chairs, where there’s always an extra chair for someone who wants to hop into the economy. After all, if the economy’s growing, it’s creating demand. It’s creating work.

We’re in this weird steady state where it’s like the economy is full. It’s the hotel with perfect occupancy where demand for work equals the supply of workers in the workforce. So there’s no room for someone to come in from the outside. Is it something like that?

Karma: That is basically it. When there is a lot of churn in the labor force, when there’s a lot of people playing that game of musical chairs, you have this filtering effect where some spot opens up somewhere up the career ladder, people move up, and then there’s a new open spot for a young person fresh out of college to be hired. Right now, we’re basically seeing, while employers aren’t necessarily firing workers, layoffs are still pretty low, they’re also just not hiring people, either. This is, again, it’s a very weird, mysterious thing.

It’s most punishing for young people who aren’t in the labor force yet, which may explain some of the trends that we’re talking about, but also, it’s not exactly a great situation for everyone else, either. If you are someone who’s just at your current job, but you’re dissatisfied with it, if you’re someone who maybe wants a raise, the primary way historically workers get raises is by quitting and finding a new job.

This is also bad for you, too. There is this stat right now that came out of Glassdoor last year that around more than two-thirds of all workers report feeling stuck in their current roles. Basically, the game that we’re constantly playing in this labor market, these musical chairs that leads to a lot of dynamism, it leads to a lot of innovation. Most importantly, it allows young people to get on the ladder to begin with. That has stopped. The music has stopped, and no one is getting hired.

This excerpt has been edited and condensed.

Host: Derek Thompson
Guest: Rogé Karma
Producer: Devon Baroldi