College and university enrollment is falling fast. With the National Student Clearinghouse Research Center recording a 16% drop in freshman enrollment in fall 2020, there’s been a lot of talk about how this decline will impact higher education. It’s the cause of a lot of hand-wringing on public radio, but the implications reach far beyond the financial health of universities.

The squeeze on the labor market could apply just enough pressure to force a major economic contraction.

Businesses need fresh talent, and even small disruptions to the labor market can have significant downstream effects. This last fall, we’ve seen a 13.7% decline in freshmen enrollment at four-year public colleges and a 22.7% decline at community colleges. Saddled with debt and out of work, many students are dropping out and moving back in with their parents.

The sudden plunge in enrollment poses a serious risk to the talent pipeline. Even as job pathways evolve and self-led training programs gain popularity, most businesses still rely on colleges churning out a steady supply of fresh, eager talent. A sudden shortage of college graduates could disrupt the economy for years to come.

The 1918 Pandemic’s Lingering Effects

To understand the cascading effects of a labor shortage, it’s helpful to study the impact of the 1918 flu pandemic, which killed an estimated 50 million individuals globally. Mortality rates were highest among young children, people 20 to 40 years old, and those 65 and older. The pandemic severely restricted economic activity — with impacts that were felt years later.

A few key features of that pandemic could prove gloomily prophetic: First, the geographic areas with the highest mortality rates experienced labor shortages and a relative increase in wages following the pandemic. Second, the pandemic had a long-term negative impact on productivity, brought lower returns on capital, and led to a rise in poverty.

A Decline in GDP

That strain of influenza was especially lethal for those of prime working age, and after the pandemic, most countries saw a 6–8% decline in GDP. (For comparison, the U.S. GDP shrank 9.5% in the second quarter of 2020.)

It may seem counterintuitive that an increasing demand for talent could actually slow the economy — until you consider that the economy needs three things to grow: capital, technological innovation, and an increase in labor inputs.

Currently, there’s no shortage of capital due to the Federal Reserve’s stimulus efforts, and technological innovation is happening at an exponential rate. Despite all this, a contraction in the labor market will restrict economic growth, and that’s bad news for young people who may be graduating late, not at all, or with more debt.

Studies show that initial market conditions can impact the earnings of college graduates for years. In a typical recession, when unemployment rises by 5 percentage points, graduates entering the workforce can expect a 9% loss in earnings initially. Recessions also lead to lost productivity and de-skilling due to prolonged unemployment.

An Inequitable Effect Within Minority Populations

Just as COVID-19 affected minority populations at unequal rates — the decrease in community-college enrollment disproportionately affects students of color. Black student enrollment is down by 12.1%. Hispanic and Native American registration and enrollment is also on the decline. The tech industry was struggling to hire diverse talent before the pandemic.

If companies don’t start reevaluating their hiring practices, the disruptions in higher ed could set inclusivity efforts back years.

The subsequent talent shortage will affect businesses in every sector — but especially companies in smaller metro areas or suburbs with businesses that recruit primarily from a handful of universities. For these employers, even a small decrease in college graduates is a huge hit to recruitment.

The Tech Talent Squeeze

To make matters worse, the talent squeeze comes at a time when our workforce is rapidly becoming more technical. Higher ed was already struggling to keep pace with the breakneck speed of technological innovation, and the pandemic has forced a greater reliance on digital channels.

The need for a workforce with technical skills will only grow. The U.S. Bureau of Labor Statistics predicts that the job outlook for software engineers will grow 22% by 2029. If college enrollment continues to decline, companies will have a much harder time hiring mid-and senior-level engineers in the next five to 10 years.

The result is that companies will have to pay up to attract talent and that there will be fewer experienced workers to mentor junior employees.

Leaders must shift their thinking from finding candidates with the perfect skill sets to hiring nontraditional candidates who are malleable and adaptable to continue to grow amid the talent shortage.

Alternative Talent Pipelines

An alternative talent pipeline might mean hiring the single mom who excelled at her coding boot camp or the younger candidate who doesn’t have a four-year degree but comes highly recommended from an apprenticeship program.

Businesses must start tapping now into these alternative talent pipelines to prepare for a coming shortage.

Employers must also begin upskilling and reskilling their current workforces.

Upskilling and reskilling starts with identifying employees with the drive to move into new roles and investing in ongoing education. Apprenticeship programs give employers a low-risk way to equip junior talent to meet their workforce needs.

If college enrollment continues to be sluggish, employers could face major recruitment bottlenecks.

Companies need to rethink their recruitment strategies and start looking for promising nontraditional hires to get ahead of the talent squeeze and avoid slowing the pace of growth.

Image Credit: avi richards; unsplash

Jeff Mazur

Executive Director for LaunchCode

Jeff Mazur is the executive director for LaunchCode, a nonprofit aiming to fill the gap in tech talent by matching companies with trained individuals.