The challenging U.S. labor market is entering a new normal, according to Goldman Sachs economists David Mericle and Pierfrancesco Mei, who tackled the phenomenon of “jobless growth” in a note dated Oct.13.
“The modest job growth alongside robust GDP growth seen recently is likely to be normal to some degree in the years ahead,” Mei and Mericle wrote, adding that they expect the great majority of growth to come from solid productivity growth boosted by advances in artificial intelligence, “with only a modest contribution from labor supply growth due to population aging and lower immigration.”
Mei and Mericle’s statements resonate with what Federal Reserve Chair Jerome Powell memorably described in September as a “low-hire, low-fire” labor market, in which, for some reason, “kids coming out of college and younger people, minorities, are having a hard time finding jobs.”
While some analysts blame the downturn in entry-level hiring on the influence of AI, others blame it on macroeconomic uncertainty, especially the seesawing tariffs regime from the Trump administration.
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Another Goldman Sachs senior economist, Joseph Briggs had recently warned that Gen Z professionals, especially those in junior tech roles, are at the frontlines of job displacement as companies rapidly automate entry-level roles.
America’s economy continues to expand with real GDP growth projected to remain steady and respectable, even as monthly payroll growth lags well behind historical recovery averages.
Goldman Sachs researchers say most of the nation’s output gains will come from productivity improvements, powered by rapid AI adoption. Meanwhile, demographic trends like population aging and lower immigration hold down labor supply growth. As a result, hiring outside of healthcare has turned negative on net in recent months, while management teams in many sectors are focused on using AI to streamline operations and cut labor costs. This shift is apparent in the data collected by the investment bank.
Goldman finds the labor market to be “somewhat weaker” than just before the pandemic, with job growth turning net negative in recent months outside of health care, and company management teams increasingly focused on using AI to reduce labor costs, “a potentially long-lasting headwind to labor demand.”
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Goldman’s analysis is measured, as Mei and Mericle write they are “skeptical of the boldest claims that rapid technological progress could lead to very high unemployment,” citing their global economics colleagues who argue that innovation and greater spending power will create new opportunities. Related to this, the Nobel Committee awarded the economics prize earlier this week to economists who specialize in studying “creative destruction” — the same dynamic Goldman is describing here. In addition, Mei and Mericle have said that “some transitional friction has been normal historically and is certainly possible in the future.”
According to the Goldman report, history suggests that the full consequences of AI for the labor market may not appear until the next recession hits. It also cites the “jobless recovery” of 2001 after the dotcom bubble burst. “During that recovery, despite a soft labor market, productivity growth remained elevated, and GDP growth rebounded earlier than employment growth.”
Economists Alex Bryson and David Blanchflower previously told Fortune that their research on labor markets and young worker “despair” suggests that jobless recoveries could be the culprit, although they acknowledge that the wages and unemployment picture is much more positive.
Goldman Sachs expects policymakers to face tough new choices as “jobless growth” becomes entrenched. Jobless growth may not mean mass layoffs, but it does mean fewer opportunities for job seekers and slower rebounds from economic shocks in the years to come.