The College Economy: Educational Differences in Labor Market Outcomes

Rajashri Chakrabarti, Thu Pham, Beckett Pierce, and Maxim Pinkovskiy

It is intuitive that workers with higher levels of education tend to earn more than workers with less education. However, it is also true that workers with more education are much more likely to be employed, and this employment advantage of education has, if anything, grown in recent years. In this post, we document profound differences in labor market outcomes by educational attainment. Drawing on the Economic Heterogeneity Indicators, we find that the gap in employment rates between workers who have completed college and workers who have not is 12 percentage points—which is larger than the employment gaps between workers of different races/ethnicities or between men and women—and is wider than the pre-pandemic gap. Moreover, most of this gap and its recent movements are driven by differences in labor force participation rates rather than by differences in unemployment rates. Fostering higher labor force participation of workers without a college degree thus would be quite helpful in promoting maximum employment.

The Education Employment-to-Population Premium Is Large and Higher than in the Pre-Pandemic Period

EPOP (Percent)

Percent

The top panel of the chart above presents the evolution of employment rates for workers aged 25-54 without a high school diploma (“Less than high school”), those with a high school diploma but no college attainment (“High school”), those who have studied in college but did not complete a bachelor’s degree (“Some college”), and those with a bachelor’s degree (“College”). The overall average employment rate is the gray line. The chart displays wide disparities between these workers’ employment rates. Although workers who have some college attainment but no bachelor’s degree have a very similar employment rate to the national average, workers with a bachelor’s degree have an employment rate that is about 7 percentage points higher. In contrast, workers who have only completed high school and workers who have not completed high school have much lower employment rates. Additionally, the employment rate of workers who did not complete high school has declined since its most recent high in June 2024 by nearly 0.7 percentage points, while the employment rate for the other education groups have experienced smaller declines or have been stable. 

The bottom panel shows the notable difference in employment rates between workers who have completed a bachelor’s degree and workers who have not. In March 2025, the college employment premium was 11.9 percentage points, wider than the gender employment gap (around 11 percentage points) and the employment gap between Black and white men (around 7.6 percentage points). Additionally, the college employment premium has widened some from the pre-pandemic premium (0.2 percentage points above its January 2020 level). Although this is a small widening, it is remarkable in light of the much larger narrowings of the racial and gender employment gaps since the pre-pandemic period.

The college employment premia are both very large and not fully intuitive. Although workers with more educational attainment would be expected to command higher earnings, it does not follow that workers with less educational attainment should be less likely to have a job, given the employment opportunities that do not require advanced education. It is also striking that greater educational attainment at already high levels is associated with higher employment; the employment gap between workers who complete a bachelor’s degree and workers who have some college education, but do not complete a degree, is larger than the Black-white employment gap for men, which is one of the wider demographic employment gaps.  

Moreover, it is remarkable that while the last five years have seen compressions of employment gaps by gender and relative stability of these gaps by race/ethnicity, the college employment premium has widened instead. One potential explanation behind this pattern is the increased role of work-from-home in the post-pandemic labor market. Remote work opportunities are relatively absent in jobs typically occupied by lower-educated workers. Jobs in industries not requiring advanced education, such as construction, and leisure and hospitality, often require their workers’ physical labor, and hence their in-person presence. Meanwhile, the gender gap decreased with increased remote work possibilities that made it easier for women to better balance child/elder care with work. 

Labor Force Participation and Unemployment Rate Premia by Education 

Percent

Percent

Education Employment Gaps Mainly Accounted for by Labor Force Participation Gaps 

Do the (a) large employment gaps across educational attainment levels and (b) their widening come from workers with less education trying to find work but not being successful? Or do they come from workers with less education becoming “discouraged” and not participating as extensively in the labor market? The panels in the chart above show that the answer is decisively the latter. The bottom panel shows that college-educated workers were 2 percentage points less likely to be unemployed than non-college-educated workers. Although being 2 percentage points more likely to be unemployed is significant in an economy in which the unemployment rate is around 4 percent, the measure accounts for only a small fraction of the double-digit employment gap between workers who completed college and workers who did not.  

In contrast, the college labor force participation premium shown in the top panel of the above chart has risen since the pandemic, standing at 10.6 percentage points in March 2025. Therefore, the overwhelming share of the college employment premium derives from workers with lower levels of educational attainment being less likely to participate in the labor force than workers with higher levels of educational attainment. Similarly, the widening of the college labor force participation premium accounts for nearly all of the widening of the college employment premium since the pre-pandemic period (January 2020), and since the recent trough in the college employment premium (April 2024). 

It is not surprising that workers with higher levels of education typically earn more. However, it is also the case that less educated workers are not as likely to find gainful employment, with employment disparities between workers of different education levels exceeding racial, ethnic, and gender employment gaps. Overwhelmingly, less educated workers are “discouraged” workers rather than workers actively looking for a job but unable to find one. Employment disparities between more and less educated workers have grown in the past five years (in stark contrast to gender and racial/ethnic gaps) and show no sign of closing. We will continue monitoring educational and other disparities in the labor market in subsequent issues of the Economic Heterogeneity Indicators. 

How to cite this post:
Rajashri Chakrabarti, Thu Pham, Beckett Pierce, and Maxim Pinkovskiy, “The College Economy: Educational Differences in Labor Market Outcomes,” Federal Reserve Bank of New York Liberty Street Economics, May 15, 2025, https://libertystreeteconomics.newyorkfed.org/2025/05/the-college-economy-educational-differences-in-labor-market-outcomes/.