AI displacement in the workplace is increasing - and affecting young people most

By Jules Rimmer

AI disruption is adding 15 basis points to the unemployment rate at present, says Morgan Stanley

Young people between 22-27 are most at risk of losing their jobs to AI disintermediation, finds Morgan Stanley

There is good and bad news about AI disruption in the labor market. It's still barely discernible as a trend with the technology responsible for adding around only 15 basis points to the overall unemployment rate. But, that figure has risen from 10 basis points last December, and the displacement effect is most pronounced among young people.

These findings were highlighted in a report published Monday by a team of economists from Morgan Stanley, led by Diego Anzoategui. He observes that since 2023, just after the original launch of ChatGPT, unemployment has increased most notably in those industries that are exposed to AI.

While Morgan Stanley did not specify which industries they categorize as high or low exposure, later on in the note two of the team, Nick Lentini and Michelle Weaver, did discuss those sectors who most frequently referred to AI adoption in their earnings calls. Thirteen percent of the S&P 500 index made references to its impact when announcing results, most notably in the financials, technology and industrials sector.

After ironing out cyclicalities, Anzoategui discovered that in those industries most exposed to AI, unemployment is running around 50 basis points above normal, creating an AI uplift effect on the overall jobless rate of 15 basis points.

A rise in unemployment (12-month moving average) with recent stabilization in less AI-exposed occupations, but continued increase in more exposed ones

One of the difficulties in compiling this report was the analysis suffers from what the team refers to as the "omitted variables problem." In layman's terms, this means other shocks to the economy (and therefore the labor market) like the tariff saga, monetary and immigration policy, and the unprecedented dynamics of the post-pandemic labor market. Nonetheless, Anzoategui is still able to discern a consistent pattern: disruption is modest but it is apparent and it's becoming harder to ignore.

What the note points out is that workers in highly exposed occupations are finding it harder to transition to other jobs once they have lost theirs. Unemployment spells in between jobs are longer. Layoffs in those sectors are also picking up.

Data suggest the age-range most vulnerable to AI disruption is the 22-27 bracket. The unemployment rate for those workers rose throughout the first half of 2026.

The evidence for young workers continues to be clearer with a sharper rise in UR since 2023

Moreover, it's not just the joblessness in these sectors that are increasing but those in work are saying that the nature of their employment is changing significantly. Their work activities are shifting, owing to the introduction and adoption of AI technologies.

Overall, Morgan Stanley emphasizes that "the aggregate labor market effects of AI remain modest and continue to look more micro than macro." The evidence implies that "AI-related labor market disruption remains relatively small in aggregate but is becoming progressively more visible in the data."

As part of the Fedreal Reserve's dual mandate, the unemployment rate is very influential on monetary policy and the bond yields. At present bond markets calculate the chances of a hike in September at 62% (FF00) and U.S. 2 year notes BX:TMUBMUSD02Y are trading at 4.26%.

-Jules Rimmer

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08-04-26 0539ET