Young U.S. workers see split labor market by education

A new analysis from the Burning Glass Institute found unemployment for young workers without a university degree has rarely been lower over the past two decades, while the same age group with degrees is near the weak end of its historical range outside the pandemic and the slow recovery that followed the 2007-09 recession. Gad Levanon, Burning Glass’s chief economist, said the gap reflects a rapid increase in the supply of degree holders and a shrinking pool of workers without degrees. “I don’t think this is temporary,” he said.

The biggest winners are blue-collar and hands-on service jobs. Construction workers, factory employees, security guards, nurses and many hospitality and retail workers are benefiting from a shortage of qualified labor, as older workers retire and immigration slows. The U.S. added 59,000 restaurant and bar jobs in August, more than a third of the 162,000 jobs created across the economy, underscoring how much of the current hiring is still concentrated in physical, in-person work.

By contrast, workers with college degrees ages 22 to 34 are seeing one of their weakest stretches in 20 years, with employers less willing to hire young graduates into entry-level roles that AI can increasingly automate. The strain is even sharper for people with postgraduate degrees and those in science and technology, where demand has cooled relative to the supply of graduates.

The official unemployment rate still shows a college premium in absolute terms: for workers ages 25 to 54, graduates averaged 2.7% unemployment in the 12 months through July, versus 3.6% for people with some college and 4.7% for those with only a high school diploma. But Levanon’s historical comparison shows the relative advantage for non-degree workers has widened sharply, especially in occupations that are more physical and less easily replaced by software.

The shift has broader economic consequences. It could keep wage pressure elevated in trades and frontline services even as salary growth cools for younger white-collar workers, complicating the Federal Reserve’s read on labor-market slack. It also suggests employers may keep leaning on automation and robotics to manage labor shortages, even as AI makes the outlook worse for new graduates entering professional tracks.

For now, the market favors workers willing to move, compromise or take jobs outside the traditional corporate pipeline. The key question for investors and policymakers is whether the current split becomes a lasting feature of the U.S. labor market as AI spreads further into entry-level work and labor supply remains tight in the physical economy.