Underemployment Hits Recent Grads: A Founder Hiring Guide
About four in ten recent college graduates are working jobs that do not require a degree, according to a Fortune report published October 26. The piece draws on New York Fed data and ties the trend to growing frustration among young people in several countries.
If you run a small team, this is not only a headline about someone else’s struggle. It shapes who applies to your open roles, what they expect, and how fast you can build a bench. Many founders are also watching AI layoffs and startups collide with the same pool of talent.
The Numbers Behind the Underemployment Story
Underemployment means holding a job that typically does not call for a bachelor’s degree. The New York Fed tracker put the rate for recent graduates, ages 22 to 27, at roughly 42% in June 2026. That is a little under the 2020 pandemic peak but still far higher than most people assume.
| Recent grads in jobs that skip the degree | About 42% (June 2026) |
| Recent grad unemployment | 5.7% (June 2026) |
| Unemployment for all workers | 4.1% (June 2026) |
| Jobless rate, ages 20 to 24 | 7.1% (September 2026) |
| Jobless rate, ages 25 to 54 | 3.6% (September 2026) |
Notice the gap. Recent grads have been more likely to be jobless than the average worker every month since early 2021. That reverses a long stretch in which a degree reliably protected you.
Why a Degree Is a Weaker Signal Than It Used to Be
Running a business is hard enough without guessing who can actually do the work. I have watched owners lean on a diploma because it feels safe. Unfortunately, the data suggests that shortcut is getting less reliable.
The same report notes that unemployment is surprisingly high in majors people consider safe. Computer engineering graduates face a 7.8% jobless rate and computer science graduates face 7%. Meanwhile, nursing and education majors sit far lower. So a title on a résumé tells you less than a sample of real work.
What AI Is Doing to Entry-Level Roles
A Census Bureau paper cited by Fortune looked at graduates in the fields most exposed to AI. For those graduates, the odds of a first job fell by five percentage points, and pay came in about 13% lower. In other words, the tasks that used to train beginners are the ones software now handles first.
That creates a quiet risk for your company. If you stop hiring juniors, you may save money this year but have no one ready to step up in three. The pressure is global too, as the AI and skills story in the UK shows.
On the other hand, there is real opportunity here. Young workers who learn to direct AI tools, check their output, and talk to customers are valuable fast. A founder who trains for those skills early can build loyal talent without paying senior salaries.
How to Hire From a Crowded, Overqualified Pool
You have more leverage than you did two years ago, but you also have more responsibility. Here are practical moves that work for teams of any size:
- Replace degree filters with a short paid work sample that mirrors the real job.
- Write role descriptions around outcomes, such as “own our weekly customer report,” instead of credentials.
- Pair each junior hire with a named mentor and a ninety-day learning plan.
- Be honest about pay and growth, since candidates know the market is tight.
If you want a refresher on sourcing, this guide on how to recruit college graduates still holds up, even though the market has changed around it.
Fairness matters here too. A candidate with a degree who is working retail is not a weak hire. They may simply have faced a hard market, so give them a chance to show what they can do on a real task.
Check the Source Before You Plan Around It
Numbers like these move month to month, so review the New York Fed labor market tracker before you build a hiring plan on any single figure. Fortune also leans on a theory called elite overproduction, which is an interpretation and not a proven forecast. Use it as one lens, not a prediction.
It is worth remembering that frustration among young workers is a talent signal as well as a social one. Many of them are capable and underused. A founder who offers real responsibility early may land people who would have gone to bigger employers in a better market.
Questions Founders Ask About Underemployment
What does underemployment mean?
It means working in a job that does not normally require the degree you earned, or working fewer hours than you want.
Should my startup hire more recent grads right now?
If you can train them, probably yes. The pool is large and many candidates are overqualified for their current roles.
Will AI end entry-level hiring?
Not entirely, but it is changing which tasks beginners do. Plan for roles that teach judgment, not only routine work.
The kindest and smartest thing a growing company can do is give early-career people real work and a clear path. It helps them, and it quietly builds your future leadership team.
