Weak job market threatens lasting scars for recent graduates

Starting a career in a weak labor market can do more than delay a first paycheck. Economists say it can hold down wages, narrow job options and leave a cohort of graduates fighting for the same opportunities long after the hiring slump has passed.

The Federal Reserve Bank of New York said labor market conditions for recent college graduates remained challenging at the start of 2026, with unemployment at about 5.7 percent in the first quarter and underemployment at 41.5 percent. The New York Fed’s tracker, which goes back to 1990, gives that stretch historical weight: this is not just a rough patch for a few job seekers, but part of a broader pattern that can shape an entire class’s early career path.

That warning is sharpened by research from the Stanford Institute for Economic Policy Research. Stanford says graduates who begin working during a recession can earn less for at least 10 to 15 years than those who start in better times. The damage is not limited to pay. Stanford researchers have found that early labor-market setbacks can spill into health and mortality later in life, a reminder that a bad first step can echo far beyond the first job hunt.

The market for the Class of 2026 has looked flat as well. In its November 2025 survey, the National Association of Colleges and Employers projected only a 1.6 percent increase in hiring for the class, a sign that entry-level demand remained muted even before the new graduates fully hit the market. Federal data show many young degree holders are still moving between school and work: in October 2024, 69.6 percent of recent bachelor’s-degree recipients ages 20 to 29 were employed, while 25.2 percent were still enrolled in school.

The broader labor market has cooled from the postpandemic boom, and younger graduates have felt it more sharply than older degree holders. The Federal Reserve Bank of St. Louis found that college graduates ages 23 to 27 had average unemployment of 4.59 percent in 2025, up from 3.25 percent in 2019, while older college graduates saw a much smaller increase. Research summarized by the National Bureau of Economic Research and Stanford has long pointed to the same conclusion: when a cohort enters on the wrong side of the cycle, the losses can linger for years, and in some cases into midlife. The question now is how much a hiring slowdown, and the uncertain role of A.I., will widen that gap for the class entering the market today.