College Degree Job Advantage Shrinks to 2.8%

The traditional advantage of a college degree in securing better job prospects and economic stability has significantly diminished, according to a recent analysis by Goldman Sachs. The labor market for recent college graduates has weakened, eroding the historical edge that college graduates have held over their non-degree peers. This shift raises critical questions about the enduring value of higher education in today's economy.

The Goldman Sachs team, led by chief economist Jan Hatzius, examined the labor market performance of recent college graduates compared to young workers without a degree. Their findings revealed a narrowing gap in unemployment rates between the two groups. In May 2025, the unemployment rate for native-born college graduates aged 22–27 was 3.8%, up from the typical 3.3% seen during periods of full employment. Over the past year, the 12-month average for this group rose to 4.6%. More significantly, the unemployment "safety premium" for college graduates—the advantage they hold in being less likely to be unemployed compared to non-degree peers—has shrunk to just -2.8 percentage points, well below the -4.1 point average in previous strong labor markets. This means that while college graduates are still less likely to be unemployed than non-degree holders, the advantage is now marginal and the smallest it’s been in decades.

Another concerning trend is the decline in job-finding rates for recent graduates. Historically, college graduates could expect to find work more quickly than their non-degree peers. However, over the past decade, this gap has compressed dramatically. In 2025, the job-finding rate for college graduates is just 0.9 percentage points higher than for non-degree holders—a stark contrast to the 8.3 point gap seen in previous full employment periods. This compression is partly cyclical, reflecting a strong post-pandemic recovery in low-skill sectors like construction, manufacturing, and retail. However, it is also structural: industries that typically hire college graduates, such as information services, finance, and professional/business services, have seen sluggish job growth, making it harder for new graduates to secure employment.

While the unemployment gap has narrowed, the participation gap has widened. Since 1997, young workers without a college degree have become much less likely to even look for work, with their participation rate dropping by seven percentage points, compared to a two-point decline for college graduates. A growing share of young people in both groups are out of the labor force because they are in school—a positive sign for long-term outcomes. However, among non-degree holders, there is a worrying rise in those not working because they are "unable to work" for reasons other than disability, illness, retirement, or childcare. This group has doubled over the past 30 years, indicating that some of the improvement in non-degree unemployment rates may be due to discouraged workers dropping out of the labor force entirely.

This analysis underscores the changing dynamics of the labor market and the diminishing returns on a college education. The traditional "safety premium" of a college degree is almost gone, primarily because so many non-graduates have given up looking for work. This shift highlights the need for a re-evaluation of the value of higher education and the potential for alternative pathways to economic security. As the labor market continues to evolve, it is crucial for individuals and policymakers to consider new strategies for navigating the job market and ensuring economic stability for all workers.