Graduating into a Slowdown: Class of 2025 Meets a Frozen Job Market

Key Findings 

• New grad hiring continues to fall this year, down 16% compared to last year: Nationwide, Gusto data forecasts job growth among 20-24 year olds to peak at a 16% lower rate this year compared to 2024. Hiring in May and June 2025 is forecast to peak 44% lower than it did in May 2022 — the last year before new grad hiring began its downward trajectory.

• While it’s harder to get a job for new grads, those that do are getting paid more, with some metro areas seeing double-digit gains. Nationwide, starting salaries for new college graduates are up 3.8% year-over-year, outpacing year-over-year inflation of 2.4% as of March 2025. That translates to a slight uptick of 1.4% in real earnings for new grads compared to last year. This marks a notable improvement compared to the class of 2024, when starting pay grew just 0.5% year-over-year – a decline in real terms after adjusting for inflation. Some metro areas – like San Francisco, and San Jose – are seeing outsized increases driven by demand for specialized skills.

• Tech hubs on the West Coast are still hiring new grads: Despite slower hiring and pay growth across most major metros, San Jose and San Francisco stand out as exceptions. Both cities are at the top of the list for new grad hiring and salary gains over the last year. San Jose saw a 13.1% increase in its new grad hiring rate, leading all other metros – alongside a 7.6% rise in starting salaries. San Francisco wasn’t far behind with hiring up 8.1% and starting pay up the most of any city at 13.4%. These trends are likely driven by a continued demand for new grads with in-demand tech talent, particularly in AI-related roles.

The average May and June new grad hire rate is forecast to be 16% lower in 2025 compared to 2024

New college graduates are entering into a job market that’s largely frozen. The most recent job openings data show that employees are keeping their jobs, and employers aren’t adding to their payrolls. This is a continuation of a trend that started in 2024, when the economy entered a “wait and see” period.

The job market for new graduates has weakened every year since 2022. Gusto forecasts that the average May and June hiring rate for the Class of 2025 will be 4.8% – 44% lower than the Class of 2022’s hiring rate of 8.7% during the same months, and 16% lower than last year’s rate of 5.8%. This significant decline highlights that the Class of 2025 is entering a job market even more challenging than that of their peers just one year earlier.

This slowdown reflects a broader cooling in the labor market, particularly for early-career roles. Many businesses remain cautious about expanding their workforce due to ongoing uncertainty around interest rates, consumer demand, and inflation. However, new grads are also facing additional headwinds that their peers in prior years did not. 

The rapid rise of generative AI is prompting some companies to rethink the structure of entry-level roles, automate routine tasks, or delay hiring while they evaluate how AI might reshape workflows. At the same time, growing geopolitical tensions and the recent implementation of broad tariffs have increased economic uncertainty, which further weighs on the hiring rate for new grads. 

With fewer open roles and heightened uncertainty about the future, the Class of 2025 is entering one of the most challenging job markets since The Great Recession. The job market has become so challenging for new grads in recent years that some are opting out entirely – ditching their field of study and returning home to work for a family business or choosing a career in the skilled trades. Still, there are some bright spots for the Class of 2025, particularly in tech-driven metros, and for new grads with in-demand skills.

While it’s harder to get a job for new grads this year, those who are getting hired are getting paid more. 

Although the overall hiring has slowed, the average starting pay for new grads is up 3.8% year-over-year, and some metro areas are seeing much stronger gains. This increase exceeds the inflation rate from March 2024 through March 2025 (2.4%), meaning that the higher new-grad pay translates to more purchasing power.

Hiring and Starting Pay are both up for New Grads in San Francisco and San Jose — Fueled by the AI Boom in Silicon Valley 

San Francisco and San Jose stand out with notable increases in both hiring and pay. While most metro areas are seeing fewer job opportunities and flat or declining pay for new grads, these two tech hubs are bucking the trend—thanks in large part to the rapid growth of AI tech in the region over the past year. In these cities, grads with tech and AI-based skills are still highly sought after, even as most of the country experiences a hiring pullback.

An analysis from the University of Maryland and LinkUp found that a significant portion of hiring for AI-related jobs last year came from West Coast tech hubs, such as San Jose and San Francisco, further emphasizing the opportunities for new grads with AI-related skills in these markets. 

In San Francisco, average starting salaries for new grads jumped 13.4% year-over-year to $95,555, while San Jose saw a 7.6% increase to $91,453. Hiring is also up: San Jose posted a 13.1% rise in new grad hiring compared to last year, and San Francisco was up 8.1%. As companies accelerate AI adoption, they’re seeking out early-career workers with technical, analytical, and AI skills, helping to lift both pay and hiring in the Bay Area.

Methodology

The insights in this report are derived using Gusto’s real-time payroll data from over 400,000 small and medium-sized businesses across the country. 

The hiring rate is the ratio of full-time Fair Labor Standards Act (FLSA) exempt 20-24 year olds hired in a given month over the total number of full-time FLSA exempt workers aged 20-24 employed by companies on the platform in that same month. Additionally, the hiring rates for future months are predicted using time series forecasting methods based on the hiring rates of the prior two months and monthly seasonal patterns. The forecasts for 2025 are based on monthly data from January 2019 to March 2025. 

The average starting salary is calculated using the average annual salary for full-time FLSA-exempt workers hired between 20 and 24 in the past four months.