Recent college graduates are aggressively hunting for their first job, but they are facing one significant problem: the labor market is deteriorating.
Economic research from the Federal Reserve Bank of New York indicated the labor market “deteriorated noticeably” in the first quarter of 2025, with those just entering the workforce taking the hardest hits.
The Labor Department reported that employers added 139,000 jobs in May while unemployment held steady at 4.2%. The unemployment rate for all college grads was 2.7%, but the rate for those between the ages of 22 and 27 years old jumped to 5.8%, according to the New York Federal Reserve. That’s the highest reading since 2021.
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This uptick in the unemployment rate among recent graduates raises concerns about the strength of the broader labor market, according to researchers at Oxford Economics.
“While we do expect the impact of tariffs, higher inflation, and weaker demand to lead to reduced business hiring and outright layoffs in the months ahead,” the researchers said.
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They cited the hiring slowdown in technology along with increasing college graduates in computer science fields as the primary reason for rising unemployment among this age group.
Some normalization after the post-pandemic surge also played a factor. However, researchers said there are “signs that entry-level positions are being displaced by artificial intelligence at higher rates,” according to the May report.
Researchers project the unemployment rate for recent college graduates will remain elevated in the near term unless there is a surge in demand from tech companies or a mass exodus from the labor force by these individuals. Those scenarios “seem unlikely,” according to the researchers.
“While these workers only account for around 5% of the workforce, they have played an oversize role in pushing the national unemployment,” the researchers said in the report.
Dr. Nathan Mondragon, chief innovation officer at artificial intelligence and human resources management company Hirevue, said the biggest challenge for job seekers isn’t just finding jobs but standing out when applying in the highly competitive market.
“With a surplus of applicants for every open role, employers are using AI-driven applicant tracking systems to filter candidates before a human even sees a resume,” Mondragon said.
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