For many Gen Z workers, the journey to secure a job can often feel isolating and lead to feelings of self-doubt. Recently, this sentiment received validation from a high-profile source: Federal Reserve Chair Jerome Powell. During a press conference following the Federal Open Market Committee meeting, Powell addressed the growing concerns regarding the cooling labor market, stating it is currently an “interesting labor market.” He highlighted that “kids coming out of college and younger people, minorities, are having a hard time finding jobs.” With a notably low job finding rate and redundancy rate, Powell remarked on the challenges of navigating a “low firing, low hiring environment,” making it increasingly difficult for young jobseekers to break into the workforce.
Recent months have been described by Deutsche Bank as “the summer AI turned ugly,” with studies indicating that AI adoption is disrupting various entry-level roles. However, Powell expressed uncertainty regarding AI's impact, suggesting that while it “may be part of the story,” the primary culprits are a broadly slowed economy and hiring restraint. Following Powell’s statements, leading economists from Goldman Sachs and UBS examined the situation and found that Powell's observations were largely accurate. They concluded that the current challenges facing young jobseekers are not predominantly driven by AI.
In a Friday analysis titled “The Kids Are Alright?”, UBS Chief Economist Paul Donovan pointed out the alarming rise in U.S. youth unemployment, contrasting it with global trends. He argued that the surge in unemployment rates among young Americans cannot be solely attributed to artificial intelligence. “The U.S. labor market experience is peculiar,” he wrote. In Europe, young workers are experiencing record low unemployment rates, while in the UK, youth unemployment has consistently declined. In Japan, employment participation among young workers is reaching all-time highs, leading Donovan to question how AI could uniquely hinder the employment prospects of younger U.S. workers.
Goldman Sachs economist Pierfrancesco Mei noted that finding a job takes longer in a low-turnover labor market. He defined “job reallocation,” which refers to the rate at which new jobs are created while existing ones are eliminated, as declining since the late 1990s. This trend has continued, albeit more slowly in recent years. Most job changes currently occur as “churn,” which has primarily affected younger workers. In 2019, a young unemployed worker could expect to find a new job in about 10 weeks; now, that average has risen to 12 weeks.
Donovan emphasizes that while it might be easy to blame technology for the struggles of Gen Z jobseekers, the overarching narrative aligns more closely with a broad hiring freeze impacting new entrants to the workforce. This freeze has less of an effect on less educated workers; for instance, high school dropouts are able to secure full-time jobs earlier than recent college graduates, who are increasingly burdened with student loan debt.
Historically, recent college graduates are hit hardest during “no fire, no hire” periods. During the Great Recession, graduates from 2007 to 2011 faced a significant lack of job opportunities, resulting in lower earnings compared to their peers who graduated during more favorable economic conditions. Research from Stanford shows that these effects can linger for 10 to 15 years, leading to severe implications for Gen Z and minority jobseekers. Experts warn of “scarring effects,” which could damage long-term earnings, homeownership potential, and wealth accumulation.
During his recent address, Powell identified additional factors contributing to the reduced labor supply, including stricter immigration measures. He reiterated that minorities are experiencing even greater difficulties in securing employment amidst the ongoing hiring freeze in 2025. Powell stated, “The overall job finding rate is very, very low,” emphasizing that if layoffs increase, hiring will likely remain stagnant.
As for the role of AI, Powell acknowledged the uncertainty surrounding its impact, suggesting that while AI may be influencing the employment landscape, it is not the primary driver of youth unemployment. He noted, “There’s great uncertainty” regarding the extent of AI's effects, indicating that while some companies may be utilizing AI more than before in the hiring process, its overall impact remains unclear.
