College Grad Underemployment Hits 42.5%, Worst Since Pandemic

American college graduates are walking into the toughest entry-level job market since the depths of COVID. Underemployment among recent college graduates hit 42.5% at the end of 2025, the highest level since 2020, as automation and rising skill demands compress the bottom of the labor market, according to data from the Federal Reserve Bank and a white paper released by Express Employment Professionals and The Harris Poll.

The numbers behind the squeeze

Recent college graduates have a higher unemployment rate than the national average (5.7% vs. 4.3%). Far worse is the underemployment rate. 42.5% of recent grads are considered underemployed. That’s the highest rate since 2020, when the pandemic first hit.

The Federal Reserve Bank of New York data shows 42.5% of recent college graduates aged 22 to 27 are underemployed, meaning nearly half of all young people who walked across a stage and collected a diploma are now working in jobs that don’t require that degree.

AI is eating the bottom rung

Positions once designed to provide a first foothold, with on-the-job training built in, now expect candidates to arrive work-ready. Office roles that centered on data entry and scheduling have been automated; workers are expected to manage systems, solve problems and communicate effectively from day one.

AI is reshaping entry-level roles. The share of job descriptions mentioning generative AI has increased nearly 5x since 2023, according to Handshake’s 2026 workforce report. Many traditional entry-level tasks (research, data entry, basic analysis) are being absorbed by AI tools, which means employers are looking for grads who can work with these tools, not compete against them.

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A no-hire, no-fire labor market

Overall, job growth has slowed sharply. So far in 2026, the economy has added an average of 68,000 jobs per month, compared with 49,000 in 2025, 186,000 in 2024, and 251,000 in 2023.

“We have this kind of no-hire, no-fire environment right now,” Aleksandar Tomic, associate dean for strategy, innovation, and technology at Boston College, told Al Jazeera. “We don’t see as much labour turnover as we normally would, and with the layoffs, we now have more experienced workers looking for jobs who will probably elbow out recent college graduates.”

Supply and demand mismatch

The hiring slowdown is real. Job postings on Handshake, the largest career platform for college students, fell more than 12% compared to pre-pandemic levels. Meanwhile, applications per posting jumped 26%. That’s a brutal supply-and-demand mismatch.

While the stock market is booming, corporations are very cautious about hiring, due to the advent of AI and macro uncertainty about world stability and the global economy. That bifurcation, soaring equities alongside a frozen entry-level labor market, is the trade angle worth tracking.

Options market and stocks to watch

The structural shift in entry-level hiring has direct implications for several names:

• MSFT: Watch for continued enterprise AI adoption via Copilot, the very tools displacing entry-level white-collar tasks.
• GOOGL: Workspace AI features and Gemini deployments sit at the center of automated office work.
• NVDA: The infrastructure beneficiary of every enterprise rolling out AI in place of junior hires.
• MSFT (LinkedIn): Watch hiring-platform data points as a real-time read on labor market tightness.
• SBUX: A bellwether for underemployed-grad service-sector hiring, and ground zero for the college-educated unionization wave per other coverage.

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