Based on the latest data from the New York Federal Reserve (August 1, 2025, with 2025:Q2 data) [3] and comprehensive labor market research, recent college graduates are facing the most challenging employment environment in over a decade, with unemployment rates reaching levels not seen since the post-financial crisis period.

This is Part 1: Analysis. To continue, see Part 2: Action Plan here: [link to Part 2].

Current Employment Situation

Recent college graduate unemployment has deteriorated significantly since early 2023. The unemployment rate for graduates aged 22–27 reached 5.8% in Q1 2025 — the highest level since 2021 — before moderating slightly to 5.3% in Q2 2025. This represents a 1.2 percentage point increase from the 4.1% rate in Q1 2023.[1][2][3]

Unemployment rate trends comparing recent college graduates (ages 22–27) versus the overall U.S. workforce from Q1 2023 to Q2 2025

The data reveals an unprecedented shift in labor market dynamics. For the first time in over four decades of data collection, recent college graduates consistently face higher unemployment rates than the general population. The gap between recent graduate unemployment and overall unemployment has widened from 0.6 percentage points in Q1 2023 to 1.1 percentage points in Q2 2025.[1][3][4]

Underemployment Crisis

Beyond unemployment, 41.1% of recent graduates are underemployed — working in positions that typically don’t require a college degree. This underemployment rate has increased by 1.3 percentage points since early 2023, indicating that even graduates who find work are struggling to secure positions aligned with their education level.[2][3]

Major-Specific Analysis

The employment landscape varies dramatically across academic disciplines, with some surprising patterns emerging:

Current unemployment rates by college major showing unexpected patterns where liberal arts are outperforming STEM fields.

Best Performing Majors:

Nutritional Sciences: 0.4% unemployment — the standout performer[5]

Art History: 3.0% — significantly outperforming many STEM fields[5]

Philosophy: 3.2% — demonstrating strong liberal arts employment outcomes[5]

Finance: 3.7% — maintaining relatively stable job prospects[5]

Struggling Fields:

Computer Science: 6.1% — surprisingly high for a traditionally strong field[5]

Physics: 7.2% — reflecting broader STEM challenges[5]

Anthropology: 8.5% — the highest unemployment rate among tracked majors[5]

Liberal arts majors (3.4% average unemployment) are significantly outperforming STEM fields (5.8% average unemployment), challenging conventional wisdom about career prospects by academic discipline.[5]

Driving Factors

Multiple structural forces are reshaping the graduate employment landscape:

Hiring Hesitancy: Shifting tariffs have created economic uncertainty, prompting hiring freezes, layoffs, and cautious, targeted hiring focused on tariff compliance and supply-chain roles. Higher input costs and price pressures complicate budgeting and forecasting, leading companies to delay or scale back long-term investments in equipment, infrastructure, and technology. [17][18][19][20][21]

Economic Uncertainty: The current administration’s policy changes, including federal hiring freezes, new tariffs and trade tensions, have created widespread employer caution. The Federal Reserve has downgraded 2025 GDP growth projections to 1.4% from 1.7%, reflecting broader economic headwinds.[8][9][2]

Artificial Intelligence Impact: While not the sole cause, AI adoption is increasingly affecting entry-level positions across sectors. Companies are automating roles traditionally filled by new graduates, particularly in tech and finance.[2][6][7]

Hiring Market Dynamics: Job openings have declined by 1.2 million from January 2024 to March 2025. Companies are maintaining existing staff but avoiding new hires, creating a “no hire, no fire” environment particularly challenging for new entrants.[10][8]

Skills Mismatch: Traditional degree requirements are shifting as employers increasingly adopt skills-based hiring practices, with nearly two-thirds of employers now using such approaches.[11]

Federal Reserve Economic Projections

The Federal Reserve’s latest economic projections suggest continued challenges ahead. Overall unemployment is expected to rise to 4.5% by end-2025 and remain elevated through 2026–2027. Given that recent graduate unemployment typically exceeds overall rates, this suggests graduate unemployment could persist at 5.5–6.0% through the forecast period.[12][9]

Summary

The current situation represents a fundamental shift in the labor market premium traditionally associated with college education. Historically, college graduates enjoyed unemployment rates 1–2 percentage points below the national average. The current reversal — where graduates face higher unemployment than the general population — is unprecedented in modern economic data.[1][15][4]The data suggests that recent graduates must adapt (read out Part 2 of the series “Action Plan”) to a fundamentally changed labor market, one where traditional degree advantages have diminished and where flexibility, skills development, and persistence are increasingly crucial for employment success.[10][16]

To continue reading, please find Part 2 here: [link to Part 2]

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References

1. https://hubbardobrieneconomics.com/2025/07/22/how-well-are-recent-college-graduates-doing-in-the-labor-market/

2. https://www.the-independent.com/news/world/americas/college-graduates-2025-job-outlook-ai-b2758693.html

3. https://www.newyorkfed.org/research/college-labor-market

4. https://paulkrugman.substack.com/p/bad-times-for-college-graduates

5. https://www.cnbc.com/2025/07/12/college-majors-employment-prospects.html

6. https://www.employamerica.org/labor-market-analysis/dont-blame-ai-for-the-rise-in-recent-graduate-unemployment/

7. https://www.youtube.com/watch?v=ZrH6DDJ7Y-M

8. https://www.americanactionforum.org/daily-dish/not-much-pomp-and-circumstance-for-grads-entering-the-labor-market/

9. https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20250618.htm

10. https://www.npr.org/2025/07/13/nx-s1-5462807/college-graduates-jobs-employment-unemployment

11. https://naceweb.org/job-market/trends-and-predictions/hiring-projections-level-off-for-the-college-class-of-2025

12. https://fredblog.stlouisfed.org/2025/06/fomc-summary-of-economic-projections-june-2025/

13. https://stevenrattner.com/2025/06/msnbcs-morning-joe-economic-slowdown-on-the-horizon/

14. https://www.oxfordeconomics.com/resource/educated-but-unemployed-a-rising-reality-for-us-college-grads/

15. https://www.newyorkfed.org/research/current_issues/ci20-1.html

16. https://www.fastweb.com/student-news/articles/career-outlook-recent-college-graduates

17. https://budgetmodel.wharton.upenn.edu/issues/2025/4/10/economic-effects-of-tariffs

18. https://www.fmis.co.uk/how-tariffs-are-transforming-capital-expenditure-strategy/

19. https://www.npr.org/2025/08/07/nx-s1-5495218/tariffs-trade-economy

21. https://www.cnn.com/business/live-news/us-tariffs-take-effect-08-07-25

22. https://fortune.com/2025/08/08/ceos-cut-jobs-tariff-costs/