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Graduates’ labour market outcomes during COVID-19: occupational switches and skill mismatch

This article looks at the impact of COVID-19 pandemic on the labour market outcomes of graduates workers in the UK, focusing on unemployment, occupational shifts and skills mismatches.

1. Main points

  • The unemployment rate for graduates, non-seasonally adjusted (NSA), was 4.6% in Quarter 3 (July to Sept) 2020, compared with 5.1% for the overall unemployment rate; the latest (Quarter 4 (Oct to Dec) 2020) NSA figure for the overall unemployment rate was 5.2%.
  • Graduate skill mismatch, defined as the proportion of graduates not employed in graduate occupations, decreased by 5.0 percentage points to 25.5% between Quarter 3 2019 and Quarter 3 2020.
  • Of all graduates who changed occupation but remained in employment in Quarter 2 (Apr to June) and Quarter 3 (July to Sept) 2020, we recorded an outflow of 1.0 percentage point in high-skilled occupations.A smaller proportion of graduates (6.7%) switched occupation in Quarter 3 2020 compared with that of non-graduates (7.0%).

2. Overview

The coronavirus (COVID-19) pandemic has had a marked impact on the UK labour market so far, with the latest period (Quarter 4 (Oct to Dec) 2020) showing further increases in the unemployment rate. Using the Quarterly Labour Force Survey (QLFS) and Longitudinal Labour Force Survey, this work assesses the early impacts of the pandemic on the graduate labour force.

Graduates are among the highest-skilled workers and they play an important role in the economy. Higher levels of skills promote innovation and growth (Barro 2001, Lucas 2015, Mason and others 2008) and are therefore crucial in dealing with the challenges imposed by the pandemic.  Graduates are also more occupationally and geographically mobile, a factor that may support their employment in times of crisis. However, the skill mismatch among graduates is reportedly higher than in other skill groups (Savic and others 2019) and this could hamper productivity performance in the long run.

Our article starts with an overview of graduate numbers for the period Quarter 1 (Jan to Mar) 2017 to Quarter 3 (July to Sept) 2020. Graduate unemployment is compared with the overall unemployment rate, and the unemployment rate for recent graduates, to address the questions of whether graduates are facing deteriorating job prospects¹ and assess how their outcomes compare with non-graduate workers. We then focus on labour market transitions of graduates across occupations. We present a detailed evaluation of occupational switching and skill mismatch in the UK labour market prior to and during the coronavirus pandemic, accounting for variations in the whole economy and across industries.

Our analysis focuses on the first three quarters of 2020, which cover different phases of the coronavirus pandemic, including the first lockdown period (March to June 2020) and the period of limited restrictions during the summer months (July to September 2020). We compare figures for 2020 with earlier data to evaluate how the labour market outcomes of graduates have been affected by the pandemic.

Specifically, our study aims to:

  • analyse movements in the unemployment rate for graduates before and during the pandemic
  • investigate changes in the distribution of graduate workers across different occupations, comparing the situation during the pandemic (Quarters 1, 2 and 3 of 2020) with previous years
  • analyse graduates’ occupational shifts
  • explore the incidence of skill mismatch and whether this has been affected by the pandemic
  • investigate changes in the extent of the skill mismatch across industries

In our analysis, we assume there has been a significant reallocation of workers in the light of the pandemic, as workers have moved out of some professions and sectors badly hit by the crisis (for example, pilots in travel and tourism), and into other professions and sectors (for example, nursing and grocery retail). Such reallocation has the potential to affect the skill mismatch in the labour market. The direction of this effect is unknown as displaced workers can either improve their job match, for example, in case of a promotion, or they might not be able to match their skills to new openings in the labour market, in which case the mismatch will increase.

Given the negative association between the skill mismatch and productivity performance, understanding this phenomenon is important in assessing the potential scarring effects that this crisis may cause. Our analysis of the changing labour market conditions of graduates overall and of recent graduates (those who graduated within the past five years) will provide an important outlook for economists and policy-makers.

3. Graduate labour market characteristics

The number of graduates has been steadily increasing in the UK. In 2017, approximately 42% of the 34 million individuals aged 21 to 64 years¹ had a graduate degree. In aggregate, the graduate labour market comprises approximately 14 million of the UK population. Women account for around 56% of graduates in the labour market with a modest increase in their share over time.²

Graduates have specific skills related to their subject type (for example, engineering, accountancy, psychology), as well as more general transferrable skills (writing, communication, critical thinking). Because of these skills, graduates may have greater resilience during times of economic crisis, although the evidence is mixed³. Graduates may therefore be less likely to be unemployed in comparison with those who do not have a degree.

In Quarter 3 (July to Sept) 2020, people aged 25 to 64 years without a degree accounted for 37% of the unemployment rate, followed by those without a degree aged 16 to 24 years (31%). Comparatively, graduates aged 25 to 64 years and young graduates (aged 16 to 24 years) accounted for 15% and 9% of the overall unemployment rate respectively. Individuals aged 25 years or over who hold a higher degree, accounted for 8%. These figures suggest that graduates on average are less likely to experience unemployment than non-graduates. Overall, 76% of individuals who are unemployed do not hold a graduate degree.

The introduction of the UK government’s Coronavirus Job Retention Scheme (CJRS) and Self-Employed Income Support Scheme (SEISS) helped to keep unemployment lower than it would otherwise have been during the initial phase of lockdown restrictions. However, total unemployment increased between Quarter 2 (Apr to June) and Quarter 3 (July to Sept) 2020, when in the latter the unemployment rate reached 5.1%.

Unemployment amongst graduates has been consistently lower than the total. The average unemployment rate for graduates between Quarter 1 2017 and Quarter 3 2020 was 3.0%, compared with the total average unemployment rate of 4.2%. However, average unemployment for recent graduates was the highest, averaging at 6.3% over the period and reaching a peak of 12.0% in Quarter 3 2020. This suggests that recent graduates have been hardest hit by the pandemic in terms of unemployment. Nevertheless, the unemployment rate for recent graduates remains below the non-seasonally adjusted youth unemployment rate (aged 16 to 24 years), which stood at 14.2% and 13.6% in Quarter 2 and Quarter 3 of 2020 respectively⁴.  


Graduates’ labour market outcomes during COVID-19: occupational switches and skill mismatch

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