Article – The tightening labor market is disproportionately squeezing America’s youngest workers, with recent data showing a concerning trend that may signal broader economic shifts ahead.
A closer examination of employment figures reveals that workers under 25 are experiencing steeper job losses than their older counterparts as employers become more selective amid rising economic uncertainty.
According to the latest Bureau of Labor Statistics data, the unemployment rate for workers aged 20-24 climbed to 7.4% in September, significantly higher than the national average of 4.1%. This represents a full percentage point increase for young workers since the beginning of the year, while overall unemployment rose just 0.6 percentage points during the same period.
“Young workers are typically the canaries in the coal mine,” explains Elise Gould, senior economist at the Economic Policy Institute. “When companies get nervous about economic conditions, they often pause entry-level hiring first and become more selective about candidates with limited work experience.”
The slowdown appears particularly pronounced in sectors that traditionally employ younger workers. Leisure and hospitality businesses added just 19,000 jobs in September, significantly below the robust growth seen in 2021 and 2022 when the post-pandemic recovery created abundant opportunities in service industries.
Retail trade, another youth employment stronghold, shed 9,400 jobs last month according to the Labor Department’s establishment survey. This contraction comes as major retailers like Target and Walmart have announced more cautious hiring plans for the upcoming holiday season compared to previous years.
For recent college graduates like Marcus Williams, 23, the shift is palpable. “Last year, my friends were getting multiple offers. Now I’ve been searching for three months with barely any callbacks,” said Williams, who graduated with a business degree from Ohio State University in May. “Companies that were actively recruiting on campus last year aren’t even showing up now.”
The Federal Reserve’s aggressive interest rate hikes—designed to cool inflation—appear to be achieving their intended effect of slowing labor market momentum. The central bank has raised rates to a 23-year high, making borrowing more expensive for businesses and consumers alike.
Goldman Sachs economists noted in a recent research brief that “labor demand is normalizing rather than collapsing,” suggesting the broader job market is experiencing a soft landing rather than a crash. However, this normalization is hitting younger demographics first and hardest.
Historical patterns support this uneven impact. During the 2008 financial crisis, the unemployment rate for workers under 25 peaked at nearly 20%, more than double the overall rate. While current conditions are nowhere near that severe, the widening gap between youth and overall unemployment merits attention.
Labor force participation rates tell another part of the story. After rebounding strongly post-pandemic, participation among 20-24 year-olds has declined slightly in recent months, suggesting some young people may be delaying workforce entry by pursuing additional education or training in response to the tighter job market.
“We’re seeing more students opt to stay in school or pursue graduate degrees when confronted with a challenging job market,” notes Jennifer Schramm, labor market analyst at the Society for Human Resource Management. “This is a rational response, though it can lead to more student debt if the advanced credentials don’t translate to sufficiently higher earnings.”
The cooling market also has implications for wage growth. Early-career workers benefited substantially from the tight labor market of 2021-2022, with median wages for 20-24 year-olds rising nearly 10% annually at the peak. Recent Federal Reserve Bank of Atlanta data shows that pace has now slowed to about 5.5%, still above pre-pandemic trends but decelerating quickly.
For policymakers, the challenge lies in achieving price stability without unduly harming labor market entrants. Young workers typically have fewer financial reserves and less established credit, making them more vulnerable to economic downturns.
Some economists argue that the current slowdown represents a healthy rebalancing after the unusual labor market dynamics of the pandemic era. “The post-COVID job market was extraordinarily tight, creating unsustainable wage pressures in some sectors,” says Michael Feroli, chief U.S. economist at JPMorgan Chase. “What we’re seeing now is a return to more normal conditions, though that adjustment is painful for those caught in the transition.”
Whether this cooling represents a temporary adjustment or the beginning of a more substantial downturn remains an open question. The answer will depend largely on whether inflation continues to moderate, allowing the Federal Reserve to ease its restrictive monetary policy stance.
For now, career counselors are advising young job seekers to adjust their expectations and strategies. “Networking has become even more critical in this environment,” advises Kimberly Torres, career services director at Rutgers University. “The days of easily applying online and getting multiple offers are, at least temporarily, behind us.”
