New college grads turn to small businesses in a tight labor market

In an increasingly challenging labor market, small businesses may offer newly minted college graduates something that larger firms cannot: a job.  

Joe Watson, the founder and chief strategist at Hey Joe Media, a Tucson, Arizona-based communications firm for nonprofits specializing in criminal justice reform, said he specifically seeks out younger workers to fill openings and hired three recent grads this spring.

Even as artificial intelligence reshapes the workforce and eliminates some entry-level positions, “criminal justice requires intense human relationships, and it is not something that can be replaced by AI,” Watson said. “The relationship is the product.”

Those just starting out have demonstrated “the initiative, energy, and willingness to make mistakes and learn from them along the way,” he said. “Experience is not the only asset.”

“I hope that more small businesses, rather than turning to AI exclusively, will continue to give these young folks — who may not have the experience on paper — an opportunity,” Watson said.

A slate of large-scale layoffs and reduced hiring expectations has put new grads on edge about their job prospects.

However, nearly 1 million new grads will be hired at small businesses during the 2026 hiring season, up slightly from 2025, according to exclusive data compiled by human resource provider Gusto, based on more than 500,000 small businesses nationwide.

Overall, hiring projections for the class of 2026 also rose 5.6% from last year, according to the Job Outlook 2026 Spring Update from the National Association of Colleges and Employers, or NACE.

New grad hiring at small and medium-sized businesses peaked above 1.3 million in 2021 before falling 29% to a low point in 2023. Now, new-grad hiring has held steady at just under 1 million hires for three years in a row, Gusto found.

“These are the businesses that tend to absorb the majority of the workforce overall,” said Aaron Terrazas, an economist at Gusto.

“Some of the angst may be a little premature,” Terrazas said of concerns among college grads about finding entry-level jobs. Even in the face of major economic shifts, “small businesses can pivot very quickly,” he said.

Cassondra Rose, the president of Renewing Hope Family Counseling Center, an outpatient mobile mental-health facility in California, said she has committed to hiring several entry-level and early-career professionals this spring to build a strong workforce pipeline.

“These roles are essential to delivering care, especially in community-based and mobile service models,” she said.

Although the pay “is not significant” at the outset, there is an opportunity for advancement, Rose said. “You can grow very fast.”

Billionaire serial entrepreneur and investor Mark Cuban has advised young job-seekers to prioritize working for a smaller company, even if it means lower pay.

In the short term, recent grads may have to sacrifice higher starting salaries, Cuban told CNBC. “In the long term, we will see where AI takes business,” he said in an email.

Starting salaries for new grads, or adults between the ages of 20-24, at small businesses are climbing, averaging $65,734 for the Class of 2026, up from 62,801 a year ago, according to Gusto — although inflation has largely eroded wage gains, Terrazas said.

In a post on X in December, Cuban also wrote, “new grads should be taking jobs SMBs.” Because those just starting out can apply their understanding of artificial intelligence, “entrepreneurial companies will love the value you add,” he said in the post.

“This year’s graduating class is the first class to have really done their entire education in the era of AI,” Gusto’s Terrazas said. “These are skills they know in their depths.”

Sam Brownell, owner of CU Collaborate, a data analytics and consulting firm based in Washington, D.C., said he had initially decided not to hire any new grads this year. He is now rethinking that strategy, he said, particularly because young adults are more technically savvy with AI.

“I am interested in finding young AI native generalists who could help us with AI implementation and process automation,” Brownell said.

Of course, some entry-level positions at smaller firms have also been reduced due to AI’s ability to automate routine tasks.

While total small-business employment grew 9.6% from January 2023 to November 2025, employment in highly AI-exposed roles grew just 3.4% — and workers between the ages of 22-28 in those roles have experienced headcount reductions, Gusto also found.

Other studies show a worsening outlook. Researchers from Drexel University’s College of Business found an expected decline in small business hiring for the Class of 2026.

Small companies with fewer than 500 employees were 30% more likely than larger businesses to say that they’re not planning on hiring new college grads this year, the researchers found.

But in the face of such challenges, there is another increasingly viable option for young adults trying to get a foothold in the job market, Cuban told CNBC. “I also think more grads will start their own businesses — it’s so much easier and cheaper to do it today,” he said.

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