College graduates looking to join the workforce this year encountered the most discouraging labor market in recent memory. The class of 2025 saw the number of job postings on Handshake (a career platform used to recruit college graduates) decline 15% from the previous year. The number of applications per job increased by 30%.¹

The Federal Reserve Bank of New York reported that the three-month average unemployment rate for recent college graduates (ages 22 to 27) was 4.8% in June 2025, significantly higher than the 4.0% average for all workers. This marks a notable shift: for several decades prior to the pandemic, the unemployment rate for young college grads was typically lower than the rate for all workers.²

According to Oxford Economics, about 85% of the increase in the U.S. unemployment rate since mid-2023 (when it was 3.5%) is concentrated in new grads who can’t find entry-level jobs. Companies that hired extra employees to handle post-pandemic surges in demand haven’t needed to hire as many entry-level workers, and uncertainty around tariffs is causing employers in highly affected industries to wait until they have a clearer picture of the impact. There are also signs that AI is replacing entry-level workers at higher rates, which could reflect a structural shift that’s just getting started and may have lasting repercussions.³

Labor market fragility

So far in 2025, the number of layoffs has been relatively low, and the nationwide unemployment rate (4.2% in July) has remained stable and near historic lows. However, the number of unemployed Americans ticked up from about 6.8 million in January to 7.2 million in July.^4–5

A general hiring slowdown appears to be making it difficult for people who don’t already have a job to get one. In the July employment report from the U.S. Department of Labor, downward revisions revealed that payroll growth slowed to an average of only 35,000 new jobs per month over the past three months, down from 168,000 per month in 2024.⁶

In June 2025, the number of U.S. job openings (7.4 million) was little changed from the previous month or from June of last year. However, the hires rate (at 3.3%) was approaching decade lows, confirming that the labor market has become less active.⁷

In recent remarks at the Jackson Hole Symposium, Fed Chair Jerome Powell referenced the hiring slowdown and suggested that Fed members are now more concerned about the labor market than rising inflation. Powell pointed out that a sharp reduction in immigration had reduced labor force growth and helped keep the unemployment rate constant. However, he also issued a warning: “Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”⁸

The white-collar recession

According to data from LinkedIn, entry-level hiring has fallen 17% since April 2019. While hiring increased in health care, construction, and education, the drop-off has been more pronounced in white-collar sectors such as tech and financial services that have historically offered reliable on-ramps for college grads hoping to launch high-paying corporate careers. Unfortunately, knowledge workers in those fields have been laid off at higher rates over the past couple of years, so new grads are competing with more experienced workers for a shrinking number of jobs.⁹

A number of corporate leaders have said publicly that the implementation of AI is allowing their companies to increase productivity without increasing their employee headcounts.¹⁰ So regardless of whether their employment prospects improve in the short term or not, today’s graduates will likely need to learn new skills more often over the course of their careers — and be capable of adapting to change more quickly — than those in previous generations.