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Gen Z workers could lose out as firms chase AI.
That’s according to economist Marc Sumerlin, who said companies betting on AI may soon scale back hiring of young workers.
“I’m very worried that companies now are going to say: ‘I know I’m not getting the returns on AI right now, but I can see it coming — and so I’m going to stop hiring young people now,'” Sumerlin — among the frontrunners to replace Jerome Powell as chair of the Federal Reserve — told Australia’s ABC News this week.
He warned that while AI could eventually boost productivity, its early impact on the labor market may be painful for new entrants.
“Before we get the good part of AI, we might get the bad part first, which is less hiring,” he said.
A hiring freeze before the payoff
Sumerlin, who served as deputy director of the National Economic Council under President George W. Bush, said that many companies he has spoken to over the past six months are “dramatically seeing better results” from early AI integration.
That could make companies more cautious about hiring.
“When they hire a new worker, it often takes a year or two before they get value from that worker,” he said. “There’s a lot of training, and so companies invest in young people, and then after a couple years, they start to get returns.”
He pointed to a troubling signal: unemployment among recent graduates is already ticking higher, suggesting a slowdown in the pipeline of early-career opportunities.
The Fed said in August that the unemployment rate for recent young college graduates was averaging 4.59% so far in 2025, compared to 3.25% in 2019.
The Fed’s balancing act
Sumerlin’s comments come as the Federal Reserve struggles to assess the economy’s true health.
With the government shutdown halting the release of key data, he said the central bank has been “driving in the fog,” and will be making decisions without its usual visibility into employment trends.
Despite that uncertainty, Sumerlin argued that inflation is easing and that the Fed should cut rates to support the labor market.
“We can see the unemployment rate has gone up for two straight years very gradually,” he said. “That tells me we’re too tight.”
A generation caught between hope and hardship
Sumerlin’s warning echoes growing unease about how AI is reshaping the first rung of the career ladder.
In London, City veteran Quentin Nason told Business Insider that AI has turned graduate hiring into a “meat grinder,” overwhelming recruiters and crushing a generation of debt-laden job seekers.
Others see opportunity where he sees risk.
Reid Hoffman, the LinkedIn cofounder, has called Gen Z “AI native” and “enormously attractive” to employers precisely because of their fluency with the technology.
Wharton professor Ethan Mollick, meanwhile, urged young job seekers to focus less on collecting skills and more on mastering tasks AI can’t easily replicate.
But Anthropic CEO Dario Amodei and economist Gary Shilling shared a more pessimistic view, that many entry-level roles could disappear before new ones emerge, and that younger generations will need to hustle to succeed in the AI era.
Goldman Sachs data from August showed rising unemployment among young tech workers, with the jobless rate for 20- to 30-year-olds in the sector up nearly 3 percentage points since early 2024 — more than four times the increase in the overall rate.
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