It’s almost commencement day for the class of 2015, so, as a university professor, there’s still time for me to give one more pop quiz:
“When we look back a decade from now, which class of graduating college seniors will have had the easiest time getting good jobs after receiving diplomas?”
(A) The class of 2000
(B) The class of 2009
(C) The class of 2015
The answer is (C)–the class of 2015, because the class of 2000 had to deal with the fall-out from the bursting dot.com bubble, and the class of 2009 had to deal with the brutal residue of the financial-sector melt-down of 2008. Meanwhile, the job prospects for the class of 2015 look strong–probably the strongest in nearly a decade.
Analyzing the specifics, here are six key factors that contribute to my optimism on behalf of the job-seeking members of the class of 2015:
The financial crisis and the poor economic conditions we’ve seen over the last eight years were born out of the housing bubble, but, ironically, housing will be one of the key sectors that pushes us toward strong economic and job growth. With household formation expected to increase after a sharp decline during the financial-crisis period, and pockets of the country now starting to experience tight housing markets and low housing inventories, the national housing market should improve further. This will lead to job growth across a wide range of sectors–including construction and manufacturing, retail and related professional industries such as financial services and insurance. This broad-based improvement in the housing market will also finally unlock the mobility of the current labor force, which had a difficult time moving to where the jobs were due to negative equity in the houses it owned.
With the exodus of the baby boom generation in full swing, the number of workers needed to support growing production for a growing economy has declined significantly. At the beginning of January 2008, the labor force participation rate (LFPR) was 66.2%; it has since fallen steadily, to 62.7% as recently as March 2015. This is near levels not seen since the 1970s. There is some debate among economists about how much of this decline in LFPR is due to baby boomers permanently leaving the labor force. Estimates vary, but several research papers attribute about 2/3 to 3/4 of the decline in the participation rate to permanent factors such as baby boomers retiring. This means that as the economy improves, demand for qualified workers will be strong.
During the financial crisis and its aftermath, firms largely relied on productivity gains to offset the declines in the workforce to meet the modest growth in the economy. But there’s a limit when it comes to using productivity as a substitute for hiring, especially when the economy begins to reach “escape velocity,” as it now seems to be doing. As a rule of thumb, when economic growth outpaces productivity growth, the difference necessitates increased hiring to bring goods and services to market. Since 2010, labor productivity growth has averaged just 0.8% per year, while real GDP growth has averaged 2.3%. As growth ramps up, hiring will need to increase, notwithstanding sharp increases in productivity.
As Bentley University’s PreparedU research shows college graduates are much better positioned than those without a college degree to match up with the increasingly demanding skill profile sought by employers. So, as the economy continues to grow, college graduates will be the first in line to be snapped up as highly qualified candidates in most entry-level positions. Among college graduates, those majoring in science, technology, engineering and math, or the highly sought after business disciplines, such as finance and accounting, are likely to be hired quickly, as they have in the last couple of years. However, as the labor market tightens, qualified graduates from all disciplines will see an improved rate of job placement compared to previous years.
The job-opening rate has continued to outpace the quit rate since the recession ended in June 2009. The gap between these two measures stood at just 0.5 percentage points, and it has steadily grown to 1.6 percentage points as recently as February 2015. This means that there is a growing net demand for new entrants into the workforce, and college graduates will be well positioned to take advantage of this trend.
In the last several years, a moribund job market, along with rising student debt, has led to questions of whether a college degree is “worth it.” As a result, there has been a decline in the rates of U.S. students attending college, and more international students have filled the tuition gap for universities. Indeed, according to U.S. Census Bureau statistics, college enrollment declined by close to half a million (463,000) between 2012 and 2013, marking the second year in a row that a drop of this magnitude occurred. The cumulative two-year drop of 930,000 was larger than any college enrollment drop before the 2008-2009 recession. As the smaller number of U.S. graduates move into the labor market, and foreign students graduate and, for the most part, return to their home countries, employers will have a smaller supply of highly qualified graduates to choose from–an enviable position for college graduates.
These solid economic signs have been reflected in Bentley’s ability over the past few years to place almost 100% of its graduates in jobs (or graduate school programs). In fact, the percentage of Bentley graduates who received one or more job offers prior to graduation increased from 54.9% in 2013 to 62.7% in 2014. Even more encouraging, the percentage of Bentley graduates who received three or more offers over the same time period nearly doubled–from 5.3% to 9.2%–indicating strengthening demand among the most sought after graduates.
Everything isn’t perfect for the class of 2015, however. Wage growth has been low for a while, growing just barely above the inflation rate.
But the Federal Reserve has pledged to keep interest rates low, and the implicit message is that this policy will remain in place until wage growth increases.
Looking at this another way, with the economy growing, and the labor market beginning to tighten up in earnest, employers will soon need to start increasing wages and salaries to attract qualified workers.
So, with the increased need for hiring among employers, and the tightening labor market, it appears that the class of 2015 will fare very well once commencement day comes and goes this spring. At the very least, these millennials should be grateful that they don’t have to face the bleak prospects confronted by the class of 2000 and the class of 2009.