AI’s Impact on Labor and Hiring
Welcome to Street Level , my new series on Liberty Street Economics . As research director, I try to keep track of the wide range of work that the economists at the New York Fed produce. My goal for this series is to periodically offer some thematic discussion of that work, highlighting recent analysis by Research staff and adding my own observations on the issue at hand. In this inaugural post,…
Title: AI's Impact on Labor and Hiring
In Liberty Street Economics' opening installment of the Street Level series, Research Director Kartik Athreya delves into the subject of artificial intelligence's influence on labor markets and hiring practices. The Federal Reserve's mandate to foster "maximum employment" underscores the importance of understanding AI's potential effects on the economy and labor force.
Early findings from October 2024 reveal that individuals who have interacted with generative AI tools harbor more pessimistic views on job availability and income inequality.
However, businesses are not as alarmist. A September 2025 regional survey conducted by the Fed reveals limited AI-driven layoffs. Instead, AI is transforming hiring and skill requirements, with firms anticipating fewer hiring plans in the future, particularly for college-educated employees. Despite some companies cutting back on hiring due to AI's automation capabilities, others are expanding their workforce to include AI-proficient workers, indicating that AI's labor-market impact is more about skill shifts than job elimination.
Firms are adapting to the integration of AI into existing processes. Luis Garicano's research emphasizes that while AI may take over certain tasks, it also creates opportunities for teams to focus on other aspects of production and adapt to evolving demands. This perspective suggests that AI adoption will not solely spare jobs requiring physical tasks or personal care, as some have speculated.
To address potential worker adaptation, firms are predominantly planning to retrain their workforce rather than lay them off as they incorporate AI. Survey data from Consumer Expectations further supports this trend, indicating that workers also value AI training. This evidence suggests that AI's short-term effects may be more evolutionary than disruptive, with firms focusing on preparing workers for new tasks instead of replacing them entirely.
The slow pace of technology adoption is not unique to AI. The transition from steam power to modern propulsion on American rivers serves as a historical example of how businesses can take time to adjust to new technologies. As AI continues to permeate various industries, businesses are likely to experience a gradual "absorption" or "diffusion" of this transformative technology.
Overall, AI's impact on labor and hiring is likely to be more about reshaping skill requirements and workforce adaptation rather than eliminating jobs.
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