Employment challenges of Chinese college graduates: trends, heterogeneity, and employer responses

Abstract

This paper provides a comprehensive analysis of the labor market challenges faced by college graduates in China. Analyzing five decades of census and survey data, we document that rising unemployment, declining labor force participation, and persistently high and increasing levels of underemployment (where graduates hold jobs that do not require a college degree) have emerged as the three key features of the labor market for college graduates following the expansion of higher education in the late 1990s. Collectively, these adverse employment outcomes affect more than half of Chinese college graduates. They also persist over the life course and have intensified across successive cohorts. Moreover, graduate employment outcomes are stratified by individual and family background characteristics, particularly gender and parental socioeconomic status, reflecting enduring structural inequalities that shape employment opportunities. Finally, to examine the mechanisms underlying these patterns, we conduct field experiments in 2022 and 2024 that assess how employers evaluate college graduates with different employment histories. We randomized key applicant attributes and submitted fictitious resumes to real job postings. The results indicate that employers capitalize on the oversupply of graduates by favoring applicants with credentials exceeding job requirements (overqualification preference) while penalizing those with prior adverse employment experiences. Together, these dynamics constrain graduates' upward mobility and help explain the prevalence and persistence of adverse employment outcomes.