The connection between a college diploma and middle-class security has frayed. As more Americans complete degrees, the labor market has not produced a proportional increase in jobs that require or reward those qualifications. By 2034, an estimated 7–11 million additional degree holders may be vying for relatively few positions that match their training, a gap that threatens to make underemployment a structural feature of the U.S. labor market rather than a temporary phase.

Economists call this phenomenon credential inflation: as degrees become more common, employers raise the bar for entry-level roles, and workers who once gained occupational access with a bachelor’s can find themselves competing for positions that offer lower pay and limited career progression. The mismatch between educational attainment and occupational demand is compounded by the uneven pace of employer investment in on-the-job training. Many firms prefer new hires to arrive “work-ready,” shifting the burden of skill development onto colleges and students—even as higher education has itself become more expensive.

The consequences are both microeconomic and macroeconomic. For graduates, persistent underemployment can translate into lower lifetime earnings, delayed wealth accumulation, and reduced job mobility. For the broader economy, widespread credential-job mismatch suppresses wage growth, depresses consumption, and can reduce the returns to investment in higher education. If the pipeline of degree holders continues to swell without commensurate growth in suitable roles, the labor market could experience increased wage compression and inefficient allocation of human capital.

Market signals are already evident. Employers in some industries are placing greater emphasis on alternative credentialing, apprenticeships and skills-based assessments. That shift can be positive if it lowers barriers to entry and improves alignment between supply and demand. However, without coordinated policy action, such changes risk creating a bifurcated system in which select sectors offer genuine pathways to skilled employment while many degree holders remain boxed out of upward mobility.

Addressing this structural problem requires a multi-pronged policy response. Public investment in vocational education and apprenticeships must be expanded to provide viable alternatives to four-year degrees. Federal and state funding models for higher education should incentivize institutions to partner with employers on curriculum aligned to labor-market needs and to offer stackable credentials. Employers should be encouraged—through tax credits or regulatory incentives—to increase training and to adopt skills-based hiring practices that reduce overreliance on diplomas as a blunt screening tool. Improved labor-market information systems can also help students make more informed choices about fields of study with strong employment prospects.

Long-term trends—demographic change, automation, and global competition—will continue to reshape demand for skills. The policy choices made now will determine whether a college degree remains a ladder to prosperity or becomes a credential that many attain without the payoff once promised. Without systemic change in hiring, training and career readiness, millions of graduates risk being relegated to underemployment, with consequences for economic inequality and growth that could persist for decades.