Americans in their early 20s are not entering the domestic workforce despite a record number of job openings, rising wages and a historically tight labor market.

The labor force participation rate for 20- to 24-year-olds was at 70.7% in September, down from 73.2% in February 2020, equating to a difference of roughly 550,000 people in this age bracket no longer in the labor force, according to the latest government data. While the participation rate — which measures the percentage of a particular group in the workforce — has leveled out at a new low for these college-aged Americans, the overall participation rate has nearly recovered to pre-pandemic levels when the jobs market was booming.

The presence of these young workers in the labor force remains significantly below where it was pre-pandemic, an indication of just how disruptive COVID-19 was to college education and how non-traditional work, such as social media and other tech entrepreneurship that typically are not counted as part of the workforce, appears to be luring young workers away from more conventional employment.

This employment lag could keep the labor market tight, potentially prolonging the Federal Reserve's aggressive monetary policy push to combat inflation. It could also set up a generation of workers with lower future earnings and skills development as the dearth of college-aged workers now turns into a glut in a matter of years, said Luke Pardue, an economist at Gusto, a payroll and benefits provider.

"This is really what I would call the missing middle of the labor force," Pardue said. "It has a lot of long-term ramifications for the economy."

Hiring tumbles

Hirings for this age group tend to increase in May, as graduates hit the job market. In May 2019, the hiring of 20- to 24-year-olds climbed by 15% over the previous month, according to Gusto, which tracks hiring rates. That slowed in May 2020 to 10%. In May 2021, these hirings climbed by just 8.5% and by only 4.3% in May 2022.

Meanwhile, wages for 20- to 24-year-old workers have climbed 13.1% over the past year, the largest increase of any age bracket. Wages for all workers have climbed 5% by comparison, according to Gusto.

"This is telling us that businesses want to hire these workers in this age group, but, for some reason, these workers have been prevented from going back into the labor force," Pardue said.

The participation rate has also lagged the recovery in other groups. Potential workers from 16 to 19 years old, surged this summer to levels not seen since 2009, as employers tried to fill persistently vacant job openings. The participation rate for prime-age workers, those between the ages of 25 and 54, has recovered to nearly where it was pre-pandemic. And while the number of workers 55 and older remains below the early 2020 level, that drop can be explained by a rise in early retirements caused by the pandemic.

An ongoing mystery

Why college-aged students have yet to return to work, however, is not as easily explained. Several economists said they were uncertain why this age group lagged others in returning to work, but most pointed to the pandemic's impact on higher education.

"My hypothesis is that for those younger individuals that were in their final year of school or first of university, COVID was particularly damaging and has led to an ongoing shortfall in participation with longer than usual education," said Gregory Daco, chief economist with EY Parthenon.

This played out in enrollment data as the largest recent declines took place in the fall of 2020, according to the National Student Clearinghouse Research Center. Enrollment fell by 3.6% from fall 2019 to fall 2020 at all U.S. colleges. Enrollment has continued to fall, though has stabilized somewhat, reflecting a return to classroom learning, declining 1.1% from fall 2021 to fall 2022.

Andrew Roth, 24, was in his spring semester at Vanderbilt University when the pandemic hit. On a full-ride scholarship, Roth said he loved learning in a classroom but was disinterested in online classes, so he decided to leave school in his senior year.

"It was so unmotivating," Roth said. "I didn't see any value in returning."

Roth decided to launch his own business, dcdx, a gen Z research and strategy firm, instead and got his college degree later. This path, Roth said, may be somewhat unique, but it is not as uncommon as it was just a few years ago as economics majors may turn down a job at an investment bank to become a YouTube content creator or videographer or launch their own tech business.

"This is becoming normal, at least more normal," Roth said. "There's so much more available to this generation … there are so many alternatives."