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The buzz on college campuses is that AI is disrupting the job market for young college graduates.
But new research from the Federal Reserve Bank of New York finds that the culprit may be something else: remote work.
An analysis of federal employment data, paired with a deep dive into the flexible work arrangements at one unnamed Fortune 500 tech company, reveals that companies are less likely to hire recent college grads into occupations that can be done remotely.
Researchers speculate that employers are reluctant to put such workers in a setting where it's harder to absorb lessons from coworkers.
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The researchers found the unemployment rate among younger college grads — those under the age of 29 — rose 20% after the pandemic, while unemployment among older college grads fell slightly.
The study compares unemployment rates pre-pandemic, from 2017 to 2019, with unemployment rates after the pandemic, from 2022 to 2024.
Unemployment rose as remote work grew fourfold, the researchers write. "Our analysis suggests that these trends are related, with remote work making it more difficult for managers to train and mentor new employees."
Remote work leads to less feedback on the job
The research began with a look at how much feedback software engineers at a Fortune 500 tech company were getting, says Emma Harrington, an assistant professor of economics at the University of Virginia and one of the authors of the report.
"What we saw was this pretty striking pattern that software engineers got about 20% more feedback if they were sitting near their colleagues than if they were distant from them," she says, adding that that was true even before the pandemic.
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But after the pandemic, feedback plummeted.
"And that really hit young workers much harder," says Harrington. "It was these people who had the most to learn that really saw this deficit in feedback."
The researchers then looked deeper into who was getting hired at the tech firm. Turns out, as the company embraced remote work, they switched away from hiring younger people.
"So they used to hire a bunch of new grads for their software engineering jobs," Harrington says. "Then they shifted really towards hiring much older people, like a decade older on average."
Later, the company pivoted again, implementing what Harrington calls a "pretty aggressive" return-to-office policy. At that point, the company resumed hiring new graduates.
"So [there was] some sense that these problems with mentorship were translating into whom this firm was deciding to hire," she says.
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A look at the broader economy
The researchers then wanted to see if what was happening at that single tech company was playing out in the broader economy.
Using a widely-used index that measures how feasible it is to do a job from home, the team divided all occupations into two categories: "remotable," which included software engineering, and "non-remotable," which included mechanical engineering.
They found the gap in unemployment between recent graduates and older workers was significantly higher in "remotable" jobs than in jobs that have to be done in person.
The unemployment rate for younger grads in "remotable" jobs jumped by almost a full percentage point after the pandemic, while the unemployment rate among older grads fell marginally.
They concluded that remote work explained nearly two-thirds of the rise in unemployment among young graduates during this period.
"This relative increase in young people's unemployment coincided with the pandemic and has remained elevated since then, as have rates of remote work," the researchers write.
AI isn't disrupting so many jobs for recent college grads — yet
To see how the rise of AI chatbots may have contributed to rising unemployment among the younger set, the researchers used another index that divides occupations into those more exposed to AI, such as engineering and accounting, and those less exposed, such as teaching and nursing.
They found exposure to AI didn't explain the divergence in unemployment rates in the 2022-24 time period. Remote workflows were much more of a driving force, Harrington says, while emphasizing that this could change.
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"It's always hard to make guesses about what's going to happen with generative AI," she says. "It's certainly possible that this story could really change over the next few years."
Researchers at the London School of Economics have reached a similar conclusion — that remote work is having a clearer impact on early-career hiring than AI — in a working paper examining new hires in the U.S., the U.K., Canada and Australia.
Regardless of the cause, the New York Fed report warns that a high unemployment rate among young college grads is concerning.
"Early-career experiences can have lasting consequences," the researchers write. "Research finds that individuals who began looking for jobs in slacker labor markets tend to have lower earnings and slower career progression relative to comparable peers who began their job search in better market conditions."
Transcript
LEILA FADEL, HOST:
Research from the Federal Reserve Bank of New York suggests the reason unemployment has been rising for new college graduates is the prevalence of remote work. NPR's Andrea Hsu reports.
ANDREA HSU, BYLINE: The study began with a deep dive into what was happening at one Fortune 500 tech company, which is not named in the report. Emma Harrington is an assistant professor of economics at the University of Virginia and one of the authors of the report. She says they first looked at how much feedback employees got when they were not in the office.
EMMA HARRINGTON: What we saw was this pretty striking pattern that software engineers got 20% more feedback if they were sitting near their colleagues than if they were distant from them.
HSU: So the next question was, as remote work became the norm, was the company still keen on hiring fresh college grads who might need more training, more mentoring? Turns out...
HARRINGTON: They really switched away from hiring young people when they went remote. So they used to hire a bunch of new grads for their software engineering jobs. Then they shifted really towards hiring much older people.
HSU: But then the company called folks back to the office, and they resumed hiring the younger grads. That got the researchers wondering.
HARRINGTON: Well, can we see this in the entire economy? Like, is this company weird?
HSU: Turns out, no, it's not weird. Data from the Labor Department showed after the pandemic, unemployment among recent college grads grew by 20% and fell slightly for older grads - those 29 and up. The age gap in employment was most pronounced in jobs that can be done from home. What the research team did not find was that AI was a big driver of this gap - yet anyway.
HARRINGTON: It's always hard to make guesses about what's going to happen with generative AI, but I think it's certainly possible that this story could really change over the next few years.
HSU: In fact, it may already be changing now. Andrea Hsu, NPR News.
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