Plain English with Derek Thompson: Episode Summary Title: The Job Market for Young Grads Is Flashing Red
Host: Derek Thompson
Guest: David Deming, Economist at Harvard
Release Date: May 6, 2025

In this enlightening episode of Plain English, Derek Thompson delves into the troubling trends affecting the job market for recent college graduates. Joined by Harvard economist David Deming, they explore the rising unemployment rates among young grads, the persistent value of a college degree, and the burgeoning influence of artificial intelligence (AI) in reshaping labor opportunities.

1. Rising Unemployment Among Recent Graduates

The episode opens with a concerning statistic: the unemployment rate for recent college graduates has surged to nearly 6%, a figure unprecedented in over four decades. Thompson highlights that even graduates from elite MBA programs are experiencing difficulties securing employment.

Derek Thompson [00:44]: "Last month, the unemployment rate for recent college grads surged to nearly 6%. Compared to the overall economy, the unemployment rate for recent grads is higher now than any month on record going back at least four decades."

David Deming explains that this trend is not solely a result of short-term economic fluctuations but reflects a longer-term decline in job market conditions for new graduates.

David Deming [04:02]: "... there's actually been a lot of economic uncertainty in the US and around the world going back to the pandemic and even a bit earlier. Lots of things going on, I think making businesses a little more hesitant to hire young college grads."

2. Evaluating Traditional Explanations

Deming explores two primary "plain vanilla" explanations for the weakening labor market:

• Business Cycle Impact: Companies may be wary of investing in young graduates during times of economic uncertainty, viewing them as long-term investments that might not yield immediate returns.

  David Deming [04:02]: "Businesses pull back on investment in young college graduates because they think about them like capital... just risks and time horizons that I'm not willing to invest in right now."

• Diminished College Wage Premium: Contrary to popular belief, Deming argues that the college wage premium hasn't declined; rather, it remains robust because wages for non-college graduates have surged, making the relative advantage of a degree appear flat.

  David Deming [06:29]: "The labor market is tighter than it's been in a long time, and that's really helped out workers at the bottom of the wage distribution much more."

3. The Enduring Value of a College Degree

Thompson raises questions about the evolving worth of a college education in a rapidly changing job landscape, especially with rising law school applications hinting at a trend reminiscent of the 2007-2008 financial crisis.

Derek Thompson [06:29]: "Is there any evidence suggesting that the value of a college degree has significantly deteriorated in the last few years?"

Deming counters by emphasizing that while the return on investment for college degrees may seem less pronounced due to increased enrollment, the absolute value remains strong.

David Deming [07:23]: "For any individual who's thinking about whether they should make this decision to go to college, it's still, by and large, a very good decision... it just hasn't been as good as it was."

He attributes the perceived stagnation to the "victims of our own success," where more individuals are attaining degrees, particularly from less selective institutions, thereby diluting the overall wage premium.

4. The Rise of Generative AI and Its Labor Market Implications

Shifting focus, Thompson introduces a provocative theory: Generative AI, such as ChatGPT, may be contributing to the rising unemployment among young graduates by automating tasks traditionally performed by entry-level employees.

Derek Thompson [10:26]: "... generative AI is quite competitive with some of the skills that are typically demanded of college graduates at that entry level white collar position."

Deming acknowledges the potential but cautions that it's still early to see significant AI-induced unemployment trends, as widespread corporate adoption is still in progress.

David Deming [12:08]: "It's too early to have actually seen that happen in the labor market yet... but I think from first principles you're right."

5. Comparing AI Adoption to Historical Technological Shifts

Thompson draws parallels between AI and past technologies like personal computers and tractors, questioning whether AI will follow a similar path of integration without massive job displacement.

Derek Thompson [15:59]: "The adoption of AI is a lot faster than the adoption of computers at work... suggesting that AI is eventually, within a couple of decades, going to be everywhere."

Deming concurs, noting that while AI will undoubtedly be disruptive, it is unlikely to lead to widespread unemployment. Instead, it will transform job functions and skill requirements, much like previous technological advancements.

David Deming [18:16]: "AI will be tremendously disruptive in the labor market... it's going to really reshuffle the winners and losers of the economy."

6. The Future of Education in an AI-Driven World

The conversation turns to education, with Thompson expressing concerns about how AI tools like ChatGPT could undermine traditional learning methods, such as writing term papers.

Derek Thompson [25:25]: "... what should high schools and colleges be teaching now in order to give people skills that they can actually use in the workforce rather than just essentially lie about their intelligence."

Deming proposes a shift towards deeper, more oral forms of education that emphasize expertise, creativity, and critical thinking—skills that AI cannot easily replicate.

David Deming [26:43]: "What this means is we have this tool, we should change the way we educate... focusing more on oral education and presentation."

7. Uneven AI Adoption and Workforce Disparities

Thompson raises a paradox where AI might benefit high performers more, as they are more likely to adopt and leverage these tools effectively, potentially widening the gap between different workforce segments.

Derek Thompson [30:53]: "AI seems to me to be most useful for below average performers... but it's actually more used by people who are already excellent at their job."

Deming recognizes this concern, highlighting that AI serves as a teammate, augmenting those with unbalanced skill sets by filling in critical weaknesses.

David Deming [33:29]: "The rewards from AI users are going to go to people who understand that and leverage their expertise to do what they do best."

8. Corporate Adoption of AI and Productivity Claims

In the final segment, Thompson questions the validity of some corporate claims regarding AI-driven productivity gains, contrasting optimistic projections with empirical evidence.

Derek Thompson [36:54]: "Mark Andreessen and other tech executives... estimate or claim are always some astronomical number... what to do with these claims."

Deming references a study by Humlum and Vestergaard, which found that even with high AI adoption rates, there was no significant impact on employment or earnings in Danish companies.

David Deming [36:54]: "They found that even though people were using them at higher rates, there was no impact on employment or earnings... the real impact is going to be a reshuffling of the economic order rather than some rise or fall of some obvious groups."

He emphasizes that AI's integration into workflows will be gradual and disruptive, leading to a realignment of economic hierarchies rather than immediate, large-scale job losses.

Conclusion

Derek Thompson and David Deming provide a nuanced exploration of the current challenges facing young graduates in the job market. While traditional economic factors play a significant role, the emerging influence of generative AI presents both opportunities and threats. The episode underscores the importance of adapting education and workforce strategies to harness AI's potential while mitigating its disruptive impacts.

David Deming [40:56]: "Thank you, Derek."

This episode serves as a critical resource for understanding the interplay between education, technology, and the evolving labor market, offering valuable insights for graduates, educators, and policymakers alike.