WASHINGTON - The U.S. labor market may face an extended period of weakness as employers delay hiring amid uncertainty over artificial intelligence's impact on productivity, Yongseok Shin, a Washington University in St. Louis economist and research fellow at the St. Louis Fed, told MNI.
Preliminary results of a survey conducted by Shin reveal more older workers using AI tools to upskill, a significant behavioral shift with as-yet unclear implications, he said. Combined with other research showing big drops in entry-level hiring in AI-exposed industries, "we may have a pretty quiet labor market for some time," Shin said in an interview.
A hiring freeze driven less by cyclical factors than by companies waiting to see how AI reshapes work "could be this pause lasting several months or even a year."
That could largely keep Federal Reserve policy on hold until labor dynamics shift significantly, he said, adding the three interest rate cuts at the end of 2025 "helped at the margin" to prevent further labor market weakening.
"They're in a neutral zone now, and they’ll probably stay there until they see something else coming,” he said.
PERCEPTION MATTERS
The solid January jobs report exceeded what Shin called "very low expectations," though he judges the overall labor market picture to be "a little bit negative," citing downward revisions in hiring over 2025, slowing wage growth and substantial decline in job openings. (See: MNI INTERVIEW: Slide In US Unit Labor Costs Eases Inflation)
Strong demand for health care workers has dominated job creation for months, but Shin cautioned the physically-demanding sector may also be susceptible to AI-related changes. "Anecdotally, AI is helping doctors be more efficient in note-taking, more productive, and perhaps providing quality control in a way that hospitals can hire less experienced nurses."
While definitive proof that AI is displacing workers remains elusive, the perception is driving behavior, Shin said.
"People feel like it's coming, and that's actually slowing down their hiring." Fears of AI-driven job losses underpin the unusually low quits rate, Shin noted. And even if a business found AI less than transformative, "You probably don't want to be the first CEO to go out and say AI seems overblown, now I'm going to hire people."
KNOWLEDGE HOARDING
Shin's latest survey work uncovers a troubling dynamic: experienced workers are aggressively training themselves using AI tools to prepare for career advancement while the imperative for hiring young workers weakens.
"It's that combination of domain knowledge and AI that makes you really productive. Young people are probably very good at AI but don’t have the domain knowledge," he said. The risk is that a prolonged hiring suspension creates a lost generation of junior talent.
"My fear is that we've really made the job market difficult for young people."
