A widely reported labor market phenomenon involves a rapidly shrinking entry-level job market affecting an entire generation of young people. The negative impacts of this trend are unmistakable, with economic studies demonstrating the long-term damage of subsequently lower pay levels that reduce lifetime earnings, productivity, and skill levels. This is being blamed primarily on the adoption of AI technologies and capabilities, but that is, unsurprisingly, too simple an answer. And perhaps more critically, although company decisions and practices are driving this, the pain, downsides, and risk to those businesses of continuing them should serve as a caution to HR and business leaders alike. However, resourceful HR strategists can leverage this weakened entry-level job market to create a competitive advantage.

How big is the entry-level job market problem?

Substantial evidence exists for the scale and scope of significant decreases in entry-level job market opportunities. Two primary trends support this: hiring, unemployment, and underemployment rates among young high school and, especially, college graduates.

Entry-level hiring

An abundance of data and analyses demonstrates significant drops in entry-level job market opportunities, and the evidence is compelling. For example, Revelio Labs reports a 35% decline in entry-level job postings since January 2023. The Burning Glass Institute noted significant losses in knowledge work (software development, data analysis, consulting) requiring 0-3 years of experience, dropping by 13-15% over a recent six-year period, while mid-to-senior role openings remained stable. Similar findings indicated a 16% decline in hiring rates in the entry-level job market.

Unemployment rates 

The ranks of the unemployed early-career workers have risen significantly, adding credence to the notion that the entry-level job market is eroding. For example, over the past six years, the unemployment rate for 20- to 24-year-old BS-degree holders has risen by 19 percentage points. Add to that the observation that layoffs among recent graduates have doubled over the same period. Similarly, the New York Federal Reserve reports that the unemployment rate for 22-27-year-old college grads is 5.7%, well above the national average of 4.2%. This appears to be a bigger issue for those pursuing professional-level careers, as the St. Louis Federal Reserve found that high school graduates experienced substantially smaller increases in the unemployment rate (0.47% vs. 41.5%) than their college-educated peers.

Underemployment rates

An interesting extension of this phenomenon is “underemployment,” or working in jobs that do not require a college education, which the St. Louis Fed found to be the case for a surprising 52% of 2023 graduates one year after graduation. Even in STEM fields like computer science and engineering, more than 25% of graduates remain underemployed. And the implications are far-reaching: the report found that even 10 years after graduation, 45% of graduates are underemployed. Being unable to gain purchase at the start of their careers appears to limit their opportunities to enter it in subsequent years. 

The industries that appear to bear the brunt of the decline in the entry-level job market are led by the technology sector (with widely publicized drops of over 50% in entry-level software and related roles), financial and information services (also heavily reliant on automation), and professional consulting services.

Why entry-level jobs are disappearing

Despite fears and dire predictions about the role AI and related technologies are playing in the rapid replacement of a large portion of jobs traditionally performed by humans, the fact is that, until that occurs, it remains a theoretical (or perhaps hypothesized) prediction. That said, it sits at the top of the list of numerous reasons for decreased entry-level hiring and employment, and with some solid reasoning. But other compelling drivers of the decline in entry-level roles exist, and, as is usually the case, the phenomenon stems from a combination of factors.

AI adoption

AI is now capable of performing routine tasks, research, and data entry once handled by junior employees. However, GenAI is generally augmentative (additive) to work efforts and productivity, while more powerful and promising Agentic AI capabilities enable the autonomous execution of work processes. Such autonomy has the potential to replace workers, but it remains a very early-stage technology, much like GenAI, that currently requires significant human oversight and supervision. 

That said, research is demonstrating a link between reductions in entry-level job market opportunities and AI adoption levels. Anecdotal evidence suggests that the enormous investments organizations are pouring into AI technologies and ecosystems are driving lower hiring levels, either as an investment justification (we will be able to do more with less) or as an investment trade-off (lower labor costs = more technological investment). However, there is little doubt that, as Burning Glass reported, early-career employees in occupations with high AI exposure (threat) experienced a 13% decline in employment.

Job cuts

Organizational staff reductions have been widespread across technology, financial services, customer service, and the federal government. These have involved layoffs, reductions in force (RIFs), rightsizing, and organizational flattening, primarily driven by economic belt-tightening, reductions in management layers, responses to volatile economic and commercial markets, facility closures or consolidations, and increased automation. 

With Challenger, Gray, and Christmas reporting the elimination of over 1 million jobs in a 15-month period, that signals a major slowdown in hiring across job levels. Hiring in the entry-level job market always suffers under such circumstances. Labor costs can account for 50% or more of the cost of doing business and, as a result, often fall under the budget knife in volatile market conditions. And flattening exercises have left fewer managers with less time to coach and develop their workers, leading to a desire for more experienced employees in their place.

STEM talent saturation

Despite dire projections about shortages of qualified professionals with science, technology, engineering, and math degrees only a few years ago, a recent shift has hampered the job prospects for many of them. In fact, combined unemployment and underemployment rates for recent graduates range from 17% to 36% across engineering (computer, chemical, aerospace, industrial, electrical, and mechanical) and computer science, as well as business analytics, finance, and accounting. 

The reason appears to be driven primarily by an overpopulation of technical degree holders (based on current industry needs), combined with the automation of traditional entry-level tasks and increased offshore outsourcing to lower labor costs. With entry-level salaries ranging from $70K to $90K+, plus generous benefits packages, employment costs under unstable market conditions can pose a substantial risk.

Entry-level skill deficits

The skills-based HR and talent movement is driving companies to better codify the human capability elements that support required task performance. It is widely discussed as a replacement for broad assumptions about the skills that college graduates acquire in their studies. In fact, the World Economic Forum has identified new, emerging competencies required for STEM-related job success that graduates of those programs are lacking, and suggests these are reasons for their struggle to compete in the labor market. It mentions “scientific literacy” and “information and communications technology” proficiencies, and others have focused on skills related to applying and co-working with AI (across professions and roles) as foundational skills that limit the job prospects of many workers worldwide. 

Another interesting (but painful) skill deficit arises from negative reports on the professional, social, and interpersonal skills and behaviors required for corporate success, which are perceived to be lacking among GenZ and GenAlpha workers. These are leading to a reported reluctance to hire or retain these less-experienced workers.

Why is this a problem that companies should address?

Despite organizations currently cutting staff to manage expenses, automating to improve efficiency, and slowing hiring to maintain profit margins, we know from experience that hiring will return as financial and business markets stabilize. The adoption of rapidly advancing AI technologies is expected to improve workforce productivity, eliminate repetitive, time-consuming administrative tasks, and address shrinking labor pools. Many experts applaud the adoption of these intelligent technologies as a step towards providing more meaningful and fulfilling work that relies on difficult-to-replicate human capabilities – critical thinking, collaboration, creativity and innovation, influencing and inspiring, exercising judgement, and acting ethically and responsibly. As such, the need for qualified and capable workers will continue. 

Therefore, while entry-level job market concerns might appear limited to individuals, organizations need to prepare and act in anticipation of negative, long-term impacts of limited or eliminated entry-level hiring.

• Reduced labor force availability: The pure volume of properly (or approximately) skilled workers will continue to lag behind projected global workforce requirements due to replacement birth rates that fail to supply sufficient numbers of workers across job families and skill categories. Stopping or limiting entry-level hiring can significantly exacerbate mid- and long-term shortages and lead to a competitive disadvantage over time.
• Weakened talent pipelines: Many people who are forced to start in careers not associated with their educational credentials remain underemployed in those industries ten years later. A talent gap will inevitably occur due to limited entry-level hiring, which limits the pool of candidates for mobility into mid-career roles as managers or subject-matter experts, and for future leaders, when growth, expansion, and turnover require culturally aligned, ready-now candidates. 
• Loss of fresh perspectives: The entry-level job market meets a need for new ideas and perspectives from younger workers who are unsaddled by failures and painful lessons from experience that can limit problem-solving (“that would never work here”). They also bring fresh thinking and ideation from their recent exposure to advanced concepts and methods learned in the classroom and laboratories that can generate innovations. Younger workers also tend to be more receptive to training, skill acquisition, and developmental roles that help fill existing and evolving critical capability gaps.
• Fewer Native AI employees: The emergence of AI expertise and applications across job roles and functions has become a critical skill, and the newest labor force entrants are more likely to have native AI capabilities. Just as business, engineering, and science graduates brought computer skills with them to companies in the 1980’s and 1990’, the newest grads can offer support and application expertise to the teams they join. These professional capabilities are essential to align with the financial investments companies are making in the associated technologies. 
• Increased reliance on external hiring: Fewer junior workers to grow, enculturate, assimilate, and capability-test over time means a need to over-rely on external hiring rather than promoting or transferring. First, consider the lower cost of junior hires, which helps balance average labor costs. Secondly, with industry estimates of true “quality hires” (higher performing, growth potential, tenure) in the 30% range, external recruiting poses a higher risk of poor technical fit, cultural mismatch, misaligned motivations, and unseen barriers to teamwork and cohesion. The long-term business value of internal mobility and advancement is substantial, affecting business, operational, and strategic outcomes.
  
  

Developing solutions to improve and exploit entry-level hiring

Addressing any hesitations or qualms about hiring from the entry-level job market requires accepting current realities and using a mix of strategic HR and talent management approaches to improve outcomes and reduce the risks associated with recruiting and hiring entry-level workers. The benefits of continued entry-level hiring are significant and can be achieved by taking a well-reasoned, planful approach to their selection, deployment, and development. 

Smart and resourceful HR leaders can use this weakened entry-level job market to create a competitive advantage by hiring the "best and the brightest" while the market is soft. Action planning should include:

1. Redesign entry-level jobs

If the work currently or previously assigned to fresh graduates (high school or college) is being replaced by automation and more efficient process design, the question and challenge for HR and line management teams is to define what work is needed to support more experienced performers (3-5+ years). What are the skills and contributions that the NextGen workers can uniquely bring to the table? The top, and perhaps most obvious, considerations lie in the digital fluencies that differentiate many young workers in today’s entry-level job market. 

For example, Digital and AI Natives can be leveraged to develop and apply the tools and methods to current operations and work processes, increasing the productivity of their more experienced counterparts. Through this, formal coaching, mentoring, and collaboration relationships can be created, where more experienced peers identify operational improvement needs that younger peers can work to address. At the same time, this can shift responsibilities for new-hire assimilation and enculturation activities that otherwise suffer from high spans of control caused by organizational flattening.

2. Collaborate closely with targeted schools

Engage directly with selected trade schools, community colleges, and universities to partner on curriculum development, contextual work experiences, and professional skills to better prepare future graduates for employment. This can range from improving the readiness of graduates in selected fields by equipping them with targeted technical, data, and/or interpersonal literacy skills needed for rapid assimilation and higher-level contributions. Create experiential learning opportunities that prepare the students and support on-the-job evaluation of their fit with co-operative education, internship, and apprenticeship programs. Sponsor classroom project work with real-world challenges and teamwork environments that can be evaluated by company subject matter experts (SMEs).

3. Develop an early talent identification program

Follow the lead of organizations that engage dozens, hundreds, or even thousands of potential hires in skill competitions, such as hackathons, technical trade battles, case study contests, or crowdsourcing events. These enable company experts to present a real business or technical challenge and observe teams working towards solution options, and then present them for evaluation by an expert panel within a prescribed timeframe. With these, potential employees can be identified and evaluated in real-time, their thinking and skills tested under field conditions, and the top performers selected for further consideration as entry-level employees.

4. Select more comprehensively

Create more impact from the limited opportunities to hire from the entry-level job market to generate a sufficient pool of future leaders and SME’s by moving beyond the traditional use of education and experience criteria. Develop critical skill and competency assessments that focus on the characteristics needed for the future, such as those related to (role-specific) AI development, co-working, critical thinking, emotional intelligence, collaboration and influencing, and managing ambiguity. Evaluate candidates on the aptitudes and aspirations that differentiate high potentials (e.g., learning agility, adaptability, and resourcefulness) using formal, validated assessment tests. 

Assess those identified capabilities throughout the attraction and recruitment process, listing the requirements in career marketing, candidate screening, interviewing, and offer activities. Create realistic job previews: day-in-the-life videos on the career site, sample job tests during the interview process, and behavioral questions that target those capabilities. Select candidates carefully by hiring those who demonstrate the core mindsets, skills, and motivations, including coachability, adaptability, and a willingness to learn and grow.

5. Change perspectives and expectations

Dealing with the perspectives, motivations, and behavioral styles of the new generation of workers might appear as a difficult challenge on the surface. However, the motivation and desire to make meaningful contributions and perform impactful work is a common thread that continues to tie generations of workers together. The key is to prepare managers and leaders to understand and accept what differentiates NextGen work styles and preferences, and to develop tactics to adapt expectations and management approaches in ways that integrate those workers into corporate culture and work requirements. Strategic change management approaches, combined with organization development (OD) techniques, offer essential tools and methods to support such a shift.

Relevant Practices & Tools

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