How the US Labor Market Is Changing in the AI Era

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This article was originally published by Goldman Sachs Intelligence, a series featuring insights on diverse topics of impact within this dynamic economic environment.

The US labor market is being shaped by three intersecting trends: two of them long-term and the third cyclical. Generative artificial intelligence is poised to automate nearly a quarter of jobs across all industries. The effects of AI could be felt by a workforce that is already “fractionalized,” in which part-time roles supplement or replace full-time ones.

Those two megatrends feed into the third trend – a slowing job market. Goldman Sachs Research expects US unemployment to rise over the next 12 months. In combination, these three forces may change how US companies recruit and retain talent in the near future.

How AI will transform staffing and recruiting

Around 4% of all US firms have adopted generative AI, but Goldman Sachs Research expects that figure to rise to 7% over the next six months. The rapid clip will be led by some sectors more than others. In information services, for instance, the adoption rate is forecast to rise from 16% to 23% in that half-year period.

The effects of this shift may be seen in online job marketplaces. Some types of work, such as logo design, copywriting, translation, or voice-over artistry, could be displaced by free or cheap AI tools in those categories. “That said, it is just as likely that new types of jobs or categories will be created as a result of AI,” writes George Tong, a senior research analyst at Goldman Sachs Research, in his team’s report.

Generative AI can also improve the efficiency of recruiters in tasks such as enhancing job descriptions, formatting resumes, ranking candidates, and conducting initial interviews.

“Screening applicant information such as resumes remains inefficient, with approximately 52% of talent acquisition leaders stating that the most challenging element of recruiting is candidate identification from large pools,” Tong writes.

Source: Goldman Sachs Research

Additionally, job marketplaces can use AI tools to offer private-label services of their own for tasks such as logo design, translation, and voice-over work. Some of the AI engines to perform such work already exist, and some marketplaces have started to implement them.

A reorientation of the labor market

Since its peak at the turn of the century, the US labor participation rate has been in steady decline, dipping from 67.3% in January 2000 to 62.7% in March 2024. Baby boomers left the workforce, labor markets weakened after the Global Financial Crisis, college enrollments increased, and early retirements rose during Covid.

Source: Federal Reserve, Goldman Sachs Research

Labor churn, or the velocity of job changes, has been rising as well. Quit rates rose from 2010 to 2019, and the pandemic “led to inflows of millions of new gig workers as unemployment rose or work hours were reduced, and people turned to gig work to augment their incomes,” Tong and his team found.

Companies too found value in a more flexible workforce, turning to freelancers, gig workers, and temps to supplement or replace their full-time employees. The share of US professionals who freelance increased from 34% in 2014 to 38% in 2023. Meanwhile, temp workers, typically brought on for short-term assignments at a single client, have seen their penetration rise in the US from 1.06% in January 1990 to 1.74% in March 2024.

Where are we in the employment cycle?

This fractionalization of the labor force is likely to continue, Goldman Sachs Research predicts, and the effect of this trend is trickling into the employment market cycle.

“With increasing instances of hiring freezes and corporate downsizing, we expect demand for labor to soften and the supply of labor to increase,” our analysts write.

On the job platform Indeed, total job posting volumes year-to-date pulled back the most for blue-collar and clerical verticals, including construction, manufacturing, and retail. Volumes in white-collar and highly skilled verticals, including software development, banking, finance, and marketing showed some signs of stability after declining sharply over the past two years.

“Based on this mosaic, we conclude that the US labor market is in its mid-to-late cyclical stages that will see unemployment rise and non-farm employment decline over the next four quarters,” Goldman Sachs Research writes.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions.