May 19, 2005

National Data, By Edwin S. Rubenstein

Young College Graduates Are Struggling. Guess One (Unmentionable) Reason

This spring, thousands of young Americans are graduating from college. They and their tuition-strapped parents regard the degree as a good investment—a ticket to financial independence and a better life. Unfortunately, the labor market no longer seems to share this view.

The real wages of young college graduates (ages 25 to 35) fell in 2004 for the third consecutive year. According to figures complied by the Economic Policy Institute, “Young College Graduates Face Weak Labor Market,” Job Watch, May 6, 2005.] Between 2001 and 2004, the real wages of young college graduates dropped from $23.04 per hour to $22.41 per hour.

Employment is finally turning around, but not fast enough to soak up the influx of new college grads. Thus the employment rate of young graduates in 2004 was 85.2 percent, down from 87.4 percent in 2000. It has been 20 years since the fraction of young college graduates with jobs has been as low as it was in 2003 and 2004.

It’s trendy to blame the declining economic fortunes of the college-educated on outsourcing or the post-bubble collapse of high-tech. But immigration may be, as usual, the factor that dare not speak its name.

Immigrants represent a rapidly growing share of the college educated workforce—and an even larger fraction of the educated unemployed. (Table 1.)

From 2000 to 2003 (the latest year of available data):

The growth rate of college-educated immigrants was three-times that of college-educated natives.

This occurred despite the post 911 slowdown in student visa processing. This also occurred despite a doubling of the unemployment rate of college-educated foreigners.

Economists call this a “supply-shock”—a situation where excess labor causes wages to fall.

The role of college-educated foreigners in depressing wages of U.S. natives is brought home by Harvard economist (and Cuban immigrant) George Borjas. In his seminal Quarterly Journal of Economics paper [The Labor Demand Curve Is Downward Sloping:] Borjas concludes that immigration 1980-2000 reduced wages of the average U.S.-born worker by 3.2 percent in 2000.

The reduction varied dramatically among education levels. Native high-school dropouts suffered an 8.9 percent wage reduction. But even college-educated natives suffered an above-average reduction of  4.9 percent.

The impact was greatest on college graduates with 11-15 years of work experience – i.e., most likely to have young families – when it amounted to 5.9 percent. Even new college graduates, with 1-5 years of experience, faced a wage reduction of 3.5 percent.

Remember when an American college proposed that tuition payments be linked to income its graduates received while working?

That might be another victim of immigration.