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Is AI already impacting employment?
A widening range of AI tools appears to be impacting graduate and junior staff recruitment and posing downside risks to employment in more sectors, meaning a possible undercurrent of weakness in labour markets to come
A building influence
Whilst financial markets have spent the past few years celebrating breakthroughs in artificial intelligence (AI), with equity markets hitting new highs, semiconductor trade soaring and investment rippling through the global economy, the much-discussed impact on the labour market has, so far, been harder to discern.
But at a time when central banks across the world are keeping a closer eye on the labour market there are now signs that we’re starting to see a stronger undercurrent of job losses, particularly in the US where employment growth has been slowing in virtually every sector. This is both a supply – and demand-side story – and the impact of AI already appears to be explaining at least some of the latter.
And this is only the start. As investment continues to pour into AI, the technology will cross new frontiers, bringing the cost down and widening the scope of jobs it can replace. Agentic AI, where human involvement is not needed, will amplify this further. The impact on the labour market, whilst only around the fringes for now, is set to get bigger.
Across the world, professional services firms – where the impact of AI is greatest – are cutting back on graduate hires, as AI tools can replicate the work that many of these new entrants to the labour market would have been doing. Of course, it’s not easy to disentangle the impact of AI on the labour market versus cyclical drivers. After all, the unemployment rate for young people has been rising more quickly than for the population as a whole in the US among both graduates and non-graduates.
Still, AI adds to any pre-existing weakness, and already appears to be putting downward pressure on hiring. In any cyclical downturn, we could see firms accelerate cost-cutting more quickly – meaning that the impact of AI on the broader labour market could continue to grow as a result.
Firms will be able to operate with fewer staff, either from cuts or by not needing to hire as many people in their growth phase. We may not be too far away from a one-person ‘unicorn’ company – with AI allowing a single worker to scale to a previously impossible size. In any case, the impact of AI across the global economy continues to build – and although direct signs of labour market stress are limited for now, there are a growing number of jobs at risk.
Firms are using AI for a wide range of tasks
Source: Federal Reserve Bank of New York, Regional Business Surveys, August 2025.
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