Introduction to the US Labor Market
The US labor market is experiencing a new normal, according to Goldman Sachs economists David Mericle and Pierfrancesco Mei. This phenomenon, known as "jobless growth," has been described by Federal Reserve chair Jerome Powell as a "low-hire, low-fire" labor market. In this market, companies are not hiring new employees, but they are also not firing existing ones. This trend is particularly challenging for young people, minorities, and those coming out of college, who are having a hard time finding jobs.
Productivity Outpacing Job Creation
The US economy is continuing to expand, with real GDP growth projected to remain steady. However, monthly payroll growth is lagging behind historical recovery averages. Most of the nation’s output gains will come from productivity improvements, largely powered by rapid AI adoption, while demographic trends like population aging and lower immigration hold down labor supply growth. As a result, hiring activity outside of healthcare has turned negative on net in recent months, and management teams in many sectors are focused on using AI to streamline operations and cut labor costs.
The Impact of AI on the Labor Market
Goldman Sachs researchers have found that the labor market is "somewhat weaker" than just before the pandemic, with job growth turning net negative in recent months outside of healthcare. Company management teams are increasingly focused on using AI to reduce labor costs, which could be a long-lasting headwind to labor demand. The rise of AI is also hurting the employment prospects of young technology workers, especially those in areas exposed to automation.
The ‘Low-Hire, Low-Fire’ Labor Market
The "low-hire, low-fire" labor market is characterized by a lack of new job opportunities, but also a lack of layoffs. This means that workers who already have jobs are likely to keep them, but those who are looking for work may struggle to find employment. Federal Reserve Governor Chris Waller has stated that job growth has probably been negative in recent months, despite the government shutdown and lack of government jobs data.
Risks and Opportunities in the ‘Jobless’ Future
The Goldman report also examines the risks and broader implications of the "jobless" future. History suggests that the full consequences of AI for the labor market may not appear until the next recession hits. In the past, companies have used recessions to restructure and streamline their workforce by laying off workers in less productive areas. This could lead to significant job losses in certain sectors.
Conclusion
In conclusion, the US labor market is facing a new normal, characterized by "jobless growth" and a "low-hire, low-fire" environment. While this may not mean mass layoffs, it does mean fewer opportunities for job seekers and slower rebounds from economic shocks. As AI continues to evolve and automate certain jobs, it is essential for policymakers to consider the potential risks and opportunities and develop strategies to support workers who may be displaced. Ultimately, the "low-hire, low-fire" labor market serves as both a warning and a guide, highlighting the need for adaptability and innovation in the face of technological change.
