The Fed says a labor-market phenomenon is hurting youth employment — and it's not AI
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- The rise of AI has been a popular boogyman for the problems facing entry level job seekers.
- But according to the New York Fed, remote work might be Gen Z's biggest job market problem.
- Economists at the Fed say companies are less likely to want to train young workers remotely.
AI gets a lot of flack for making life hard for young workers, but the New York Fed says it's not be the cause of Gen Z's job problems.
A June 1 post from Liberty Street Economics, the New York Fed's blog, said that since the COVID-19 pandemic of 2020, remote work has become the most significant barrier for entry level and early career workers.
"We estimate that remote work can explain 64 percent of the recent increase in unemployment among young college graduates," wrote Fed research economist Natalia Emanuel. "Further, the timing of this surge suggests that remote work—not generative AI—explains the bulk of the rise in youth unemployment."
This comes at a time when much of the focus from labor market economists is on the impact of AI, often cited as a reason for layoffs and the low employment rates among new job seekers. Gen Z's backlash against the technology has been growing as pundits continue to blame it for the tighter job market
The post, co-authored by economics professors Emma Harrington and Amanda Pallais, noted that the desire to work remotely may be standing in the way of Gen-Zers getting hired even more than anything to do with AI.
"We document that one factor contributing to youth unemployment is the four-fold rise in remote work since the pandemic," the authors stated. "Employers may not want to hire fresh graduates onto distributed teams because it is more difficult to teach them the requisite skills from afar."
This also feeds into a narrative that of the "Gen Z career squeeze." As middle managers are increasingly stretched, they are compelled to prioritize experienced hires who require less training over newer, less experienced applicants.
The post's authors said that while AI replacing young workers has been a popular narrative, the increase in youth unemployment began before the diffusion of AI through the workplace in recent years.
"The aggregate increase in the unemployment rate for young college graduates can be traced to remotable occupations, where young people's unemployment rate increased by almost 1 percentage point between 2017-19 and 2022-24," the authors added. "By contrast, the unemployment rate of older workers in remotable sectors marginally declined over that period."
Other commentators have recently hit back against the idea that AI is replacing workers, even as many CEOs cite AI as a reason for layoffs this year. Apollo Global Management's top economist, Torsten Sløk, recently wrote that there's "zero evidence" of AI-driven job losses. On Tuesday, he also credited AI with boosting business formation in the US.
Peter John Lambert of the London School of Economics, and Yannick Schindler of the Ellison Institute of Technology, also recently analyzed extensive hiring data from the US, UK and Australia for roughly the same period.
"Our findings point strongly towards WFH exposure as a better predictor of the decline in relative early-career hiring," they noted.
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