Every time there’s fresh evidence of labor market softness, as with the July jobs report, an obvious question is raised about the health of the US economy. Now, increasingly, economists and employees are asking a second question: Are we seeing the impact of artificial intelligence on knowledge workers?
There are plenty of signs that AI is making the job market tougher for young college graduates, but for the 22 million people with jobs that are categorized as professional and business services, wage growth has actually accelerated over the past year to levels solidly above pre-pandemic rates. This suggests that the state of the labor market for white-collar workers is best described as bifurcated — one where there are both winners and losers rather than one where most workers are worse off.
Despite the overall unemployment rate being a solid 4.2%, conditions for young workers are soft. Only 65.3% of 20- to 24-year-olds were employed last month, nearly three percentage points lower than the post-pandemic peak in January 2024, and roughly the same proportion as we saw in December 2008 following Lehman Brothers Holdings Inc.’s collapse. For the millions of college graduates in the 22 to 29 age group, the unemployment rate stood at 3.7% in the first six months of the year, compared with 2.8% in 2019, according to Current Population Survey data.
Such numbers are backed up by numerous news reports as well as comments from corporate executives on how they see AI transforming labor needs. Internship postings this spring were down. A recent Wall Street Journal report noted that the share of entry-level hires relative to all new hires has slumped by 50% since 2019 among the biggest technology companies, while another pointed to consultancy firm McKinsey putting together smaller but more experienced teams as it adds AI to the mix.
It’s also becoming more common for CEOs to talk about AI eventually leading to significant layoffs. At Meta Platforms Inc., Alphabet Inc. and Microsoft Corp., employee headcount grew 64% between 2019 and 2022 but just 3% over the past three years. This comes at a time when the three tech juggernauts collectively plan more than $250 billion in capital expenditures over the next 12 months, suggesting that there’s a tradeoff between investing in AI and hiring workers.
