Remote Work or AI? What's Really Driving the Job Crunch for Young Workers
Young jobseekers around the world are currently struggling as job opportunities have dried up. Many blame AI, but might it actually be remote work causing the issue?
Photo credit: Annie Spratt
Global labor markets have weakened in recent years. The substantial decline in vacancies has made it more difficult for jobseekers to find new job opportunities in today’s economy. In this “low-hire, low-fire” labor market, one group has suffered disproportionately: junior workers. Job postings for entry-level roles have fallen significantly more than those for experienced professionals. The technological disruption caused by AI is the obvious culprit. However, some research suggests the increasing prevalence of working from home (WFH) could be responsible.
We will look at how both channels affect young jobseekers, and which one plays the bigger role.
The labor market is tough for young jobseekers
Let’s start with the facts: the labor market has clearly worsened more for young people than for experienced workers. Data from ADP — a payroll service company — shows that the private sector continues to create jobs for mid-career and senior professionals. Early-career employment, on the other hand, has fallen since 2023.
Nowhere is that gap as striking as for software developers. Early-career employment has fallen by a stunning 20% (ages 22-25), while mid-career employment (ages 41-49) is up by 21%.
What is interesting is that this trend is unfolding simultaneously across advanced economies. The deterioration in early-career job prospects is being aggravated by the use of AI, with some jobseekers sending out hundreds of applications without getting a foot in the door. While employment for young people started to dip around the time ChatGPT was released, graduate hiring had already been falling for a year before then, predating the widespread adoption of AI. This strongly suggests that AI cannot be the only factor causing this.
Why remote work is hurting early-career jobs
The COVID-19 pandemic significantly transformed how the labor market functions for some workers. While some employers are trying hard to get workers back to the office every single day, the reality is that labor markets have settled in a new equilibrium: the share of jobs offering remote or hybrid work has remained elevated, holding at about 12 to 16% in most countries since the pandemic. Switching to a more WFH-friendly employer if push comes to shove is always a viable option, making it less likely that most companies dial back hybrid work.
While the U.S. looks like an outlier on this chart, data from the Bureau of Labor Statistics confirms that more than 10% of all workers are fully remote, and another 11% are hybrid. Maybe U.S. employers simply don’t advertise this benefit aggressively enough on Indeed?
For experienced staff, the upside of remote work is obvious: lower commuting time and cost, the option to live in a cheaper area, etc. But this new reality might quietly tilt the labor market against young workers.
Why, you ask?
Young workers with little or no work experience require significantly more training and hands-on supervision. A lot of the early-career skills are absorbed through proximity to colleagues, including spontaneous mentoring and coaching. This mechanism is disrupted in a fully remote setting, increasing the cost of inexperienced hires. As human capital accumulation builds more slowly, the return on hiring young workers goes down, while the cost rises. Due to the longer payback horizon, graduate hiring falls. Some studies have recently asserted that a big chunk of the decline in graduate hiring is due to WFH.
What about AI?
On the other hand, a separate strand of literature is blaming AI. The mechanism here is more obvious. AI is a labor-displacing technology that can do a lot of the grunt work that graduates were formerly doing at a fraction of the cost — that’s the argument put forward by some executives, at least. And there is obviously some truth to that. Graduate employment across investment banking, consulting, and large tech employers has fallen, as technology has been deployed to do some of the work.
However, it is not entirely clear yet to what extent AI is a labor-displacing technology. A new study shows that firms with high AI adoption are actually hiring at a faster pace than companies that do not adopt it. More interestingly, AI-intensive firms also seem to hire more junior graduates today than the rest of the market. Now, this effect might simply arise because these companies have much higher revenue growth than the rest of the economy. It's therefore not surprising that they also see a faster increase in headcount for now. But the authors try to control for this by comparing early AI adopters with similar companies that adopted AI a little later — and the result holds: they still hire more juniors.
Source: A New Look at AI’s Impact on Jobs: Firm-Level AI Spending and Workforce Adjustment
Why researchers struggle to find the definitive answer
Here is where it gets tricky though. For each occuapation, we combine a measure of AI exposure from the Budget Lab with data on the WFH share. Our analysis shows that the correlation between the two is extremely high — 75.6%, to be precise, based on about 700 different occupations in the U.S.
The problem is that statistical inference becomes more complicated when two variables are so highly correlated. When researchers try to estimate the effect of AI on junior roles, they might inadvertently pick up the WFH effect instead — and vice versa! Previous research that has not taken this into account is therefore likely biased.
Where do we come down?
In my opinion, Lambert and Schindler’s paper on the broken career ladder for young workers has one of the more credible research designs for disentangling the two labor market shocks. The authors document the significant correlation between AI and WFH exposure. In their statistical analysis, they find that each metric on its own explains a significant part of the decline in junior hiring. But when estimated together, the AI effect disappears, while the WFH effect remains highly significant. AI might therefore not be the main culprit at all — it’s apparent effect might simply be the WFH channel working in disguise.
Of course, their study is not the final verdict on this topic. Moreover, technology is evolving rapidly, while the share of WFH jobs has stayed constant in recent years. Even though this doesn’t seem to be the case today, it is possible that the AI effect on graduate hiring might dominate the WFH effect in the future.
What does this mean for recruiters?
The labor market for young people has worsened significantly, with entry-level job openings at a decade low. While many blame AI for displacing these jobs, economic research suggests that the WFH channel is more important as it raises the cost and lowers the return on inexperienced hires. We also shouldn’t forget the sluggish macroeconomy, constrained by high interest rates, supply-side shocks, and global uncertainty. These factors have also weighed on jobseekers’ prospects.
If you are working in recruitment, you might have a good understanding of whether WFH, AI, or a combination of both has contributed to your company hiring fewer young workers. Either way, the downstream effects of depressed graduate hiring will be felt in the coming years. Let’s not forget that many advanced economies face a retirement tsunami as the large cohort of baby boomers is gradually leaving the workforce. Even with AI, many companies could experience severe labor shortages down the line. But right now, building your young talent pipeline is cheap. Employers should take advantage of this moment, or risk scrambling for young talent again when the market is tight and competition fierce.