AI Advances and Layoffs: Is the White-Collar Job Market Shrinking?
When Starbucks announced layoffs of over 1,000 corporate employees last month, it underscored a troubling trend for white-collar workers. Over the past few years, they have faced rising unemployment and slower wage growth compared to other groups.
- This wave of job cuts has sparked debate: Are these losses temporary adjustments or signs of a lasting shift in the job market?
A Shifting Job Market
After staying below 4% for more than two years, the U.S. unemployment rate crossed this threshold in May.
- Economists argue that, historically, the job market remains strong, but recent changes are largely due to pandemic-related hiring surges followed by layoffs as the Federal Reserve raised interest rates.
However, some worry that rapid AI advancements and Trump’s targeting of federal agencies could trigger a permanent decline in knowledge-based jobs.
The Video Game Industry: A Case Study
Few industries illustrate these workforce shifts as clearly as video game development.
- The sector experienced a boom in 2020 as homebound consumers turned to gaming for entertainment.
- Companies hired aggressively but later reversed course, leading to widespread layoffs.
That same year, a unionization movement spread beyond low-wage testers to higher-paid designers, producers, and engineers.
- Workers at Bethesda Game Studios, a Microsoft-owned company behind Fallout, formed a union in response to layoffs in 2023 and 2024, hoping for better job security in an uncertain market.
Job Losses in Finance and Corporate Restructuring
Unemployment in finance and related sectors, while still relatively low, increased by 25% from 2022 to 2024.
- Rising interest rates dampened demand for mortgages, forcing companies to cut costs and streamline operations.
Last fall, Wells Fargo reduced its conduct management intake team—which investigates corporate misconduct—by a quarter, affecting 45 employees.
Atif Rafiq, a former executive at McDonald’s and Amazon, noted that firms are restructuring teams to be more cross-functional, blending roles like coding and marketing.
- This approach, seen at Amazon, helps eliminate redundancies, leading to further layoffs.
- Starbucks CEO Brian Niccol cited a similar goal of reducing layers and duplication to build leaner, more efficient teams—a strategy also embraced by Nissan.
A Slowdown in College-Degree Hiring
According to ADP Research, hiring rates for college-educated workers have declined more sharply than for other groups.
- Some economists believe this is a short-term trend, not a fundamental shift.
- Harvard economist Lawrence Katz pointed out that unemployment among degree-holders has only risen modestly more than the overall rate.
Since 1980, the wage gap between college graduates and non-graduates steadily widened, but it has flattened in the past 15 years—though it remains high.
- This shift may reflect the increased supply of college-educated workers, making jobs more competitive.
- Others argue that employers simply need fewer graduates, as AI and automation reduce demand for roles like bookkeeping, which once attracted high-wage professionals.
AI’s Role in Reshaping White-Collar Work
Many tech leaders and investors view AI as a tool for workforce reduction.
- A recent study found that software developers using an AI coding assistant improved productivity by over 25%, with the biggest gains among less-experienced coders.
- This suggests AI could narrow the wage gap between junior and senior developers, reducing the premium for experience.
Mert Demirer, an MIT economist and co-author of the study, suggested that the developer’s role may evolve into that of a project manager overseeing AI tools.
- If AI increases productivity, wages could rise, but in the short term, firms seem focused on cutting costs rather than expanding hiring.
A software engineer at a major tech company reported that his team had shrunk by half compared to last year, yet employees were expected to maintain the same workload, relying more on AI tools.
- The unemployment rate in tech rose from 2.9% in 2022 to 4.4% in 2024, reflecting industry-wide job reductions.
Government Job Cuts and Future Uncertainty
Beyond the private sector, Trump’s push to reshape federal agencies has resulted in hiring freezes and job losses for government employees and those in nonprofits and universities that rely on federal funding.
- This month, Johns Hopkins University announced layoffs of 2,000 employees worldwide, citing federal research funding cuts.
Professor Lawrence Katz noted that college-educated workers are more likely than others to depend on government-funded jobs.
- He warned that cuts to research, education, and science spending could have a major impact on this group.
- While unemployment among college graduates is not yet alarmingly high, he predicted that the next six months could bring further challenges.
