Key facts
- AI may be contributing to lower wage growth and slower hiring, especially for younger workers.
- Employment in AI-exposed sectors has declined, particularly for workers under 25.
- Wages in AI-exposed sectors are growing faster than the national average.
- Real wage growth in highly AI-exposed occupations has been nearly flat since 2023.
- Labor's share of U.S. economic output has fallen to a 79-year low.
- Companies may be capturing AI productivity gains through wage compression rather than layoffs.
Artificial intelligence's influence on the U.S. labor market is becoming increasingly evident, with early data suggesting a complex relationship between the technology, employment, and wages. While AI can automate tasks, potentially displacing workers, it can also augment existing roles, complementing worker expertise. The distinction between codified knowledge, which AI can replicate, and tacit knowledge, gained through experience, appears to be a key factor. AI may substitute for entry-level workers whose roles rely heavily on codified knowledge, while complementing experienced workers who utilize tacit knowledge.
Employment trends vary significantly across sectors. The computer systems design and related services sector has seen a 5 percent decline in employment since late 2022. More broadly, employment has decreased by 1 percent in the 10 percent of sectors most exposed to AI. This decline disproportionately affects younger workers, with employment for those aged 22 to 25 falling by approximately 13 percent in the most AI-exposed occupations, according to Dallas Fed research. This is attributed to a low job-finding rate for new entrants rather than layoffs.
Despite employment lags in AI-exposed sectors, wage growth in these areas is outpacing national averages. Since the release of ChatGPT in fall 2022, nominal average weekly wages nationwide have risen 7.5 percent, while the computer systems design sector saw a 16.7 percent increase. Among the top 10 percent of AI-exposed industries, wages grew 8.5 percent. However, a white paper from Apollo Global Management indicates that workers in highly AI-exposed occupations saw 6.7 percentage points less real-wage growth than their less-exposed counterparts after 2023, with real wages in these roles remaining nearly flat. This suggests companies may be capturing productivity gains through wage compression.
This wage trend aligns with a broader shift in the distribution of economic output. The labor share of output, the percentage of nonfarm business output paid as worker compensation, fell to 52.8 percent in the second quarter of 2026, its lowest point since 1947. Real hourly compensation also declined in the same quarter. Researchers suggest that AI could accelerate this multi-decade trend of automation and a declining labor share.