Artificial intelligence may already be displacing some of America’s youngest workers, according to Fed Governor Michael Barr.
Speaking Tuesday at the New York Association for Business Economics, Barr said that AI it is beginning to weigh on entry-level employment in highly exposed occupations such as software development and customer service.
Is AI Already Taking Jobs?
Job creation has been near zero over the past year, labor force growth has stalled and the unemployment rate is hovering around levels many economists associate with long-run equilibrium.
“But it is a delicate balance,” Barr warned, noting that such conditions could leave the labor market “especially vulnerable to negative shocks.”
The most consequential part of Barr’s speech was about the effects of artificial intelligence on the jobs market.
Barr described generative AI as a likely “general-purpose technology,” comparable to the steam engine, electricity or the personal computer.
Such technologies tend to drive long-run productivity growth and higher living standards. But history also shows that transitions can be painful.
Barr said research using ADP payroll data shows early-career workers in AI-exposed fields such as software development and customer service have seen employment decline relative to peers in less exposed occupations.
He highlighted that entering a weak labor market can depress earnings for years.
“For these workers, the short run may have long-term consequences,” Barr warned.
Barr’s caution echoes findings from a recent exclusive Benzinga interview with Nico Palesch, senior economist at Oxford Economics.
Palesch said up to 20% of the U.S. workforce could be highly exposed to robotics and automation over the next decade or two, particularly in transport, logistics and manufacturing.
“The people losing their jobs aren’t necessarily going to get new jobs,” Palesch told Benzinga.
What About Productivity Gains From AI?
On productivity, one study cited by Barr estimates AI could add 0.3 to 0.9 percentage point to annual total factor productivity growth over the next decade.
Speaking in comparable terms, that would rival late 1990s internet-driven gains.
So far, AI adoption has moved fast.
As of December 2025, 17% of businesses in the Census Business Trends and Outlook Survey report using AI. Among firms with more than 250 employees, about 30% report adoption.
A McKinsey survey found 88% of mostly large firms use AI in at least one function. Generative AI use jumped from 33% in 2023 to 79% in 2025.
Over the long run, Barr expects AI to boost productivity and living standards. But in the short term, he cautioned, “AI may deeply disrupt labor markets and harm some workers.”
He urged policymakers and society to begin preparing now.
“In my judgement, now is the time for society to begin to consider how to address these potential disruptions, while AI adoption is in its early stages,” Barr said.
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