How Firms Used AI as a Scapegoat

Entry-level hiring is back!

The labor market is tight—but not in the usual way. We’re seeing low hiring and low firing at the same time. Firms are holding off on bringing in new employees, while existing workers aren’t leaving because better opportunities are scarce. If you have a job right now, you hold onto it.

The group most affected by this is young college graduates. Their unemployment rate has risen sharply, nearing that of young workers without a degree. That’s triggered real concern, and predictable questions about whether a college education still pays off. Some have even argued that this signals higher education is no longer necessary.

But that conclusion is too quick.

Recent reporting from the Wall Street Journal suggests firms are returning to entry-level hiring this spring. So what changed?

Here’s how I’m thinking about it—points I’ll expand on during today’s Eggs & Issues discussion at the NKY Chamber:

1. Policy uncertainty has been high.
   Over the past year, firms have faced significant uncertainty. When the outlook is unclear, hiring and investment slow down. “Wait and see” becomes the dominant strategy.

2. Entry-level hiring is a tough economic bet.
   Young college graduates are costly and inexperienced. If firms do hire, they often choose either experienced graduates—whose higher pay feels justified—or lower-wage, non-degree workers. New grads get squeezed in the middle.

3. AI became a convenient narrative.
   Over the past three years, firms that talked about AI have been rewarded by markets. Instead of saying, “We’re not hiring because of uncertainty,” many framed it as “We’re investing in AI.” It’s a cleaner story and better PR.

4. Investment in AI is ahead of its impact.
   Spending on AI is high, but measurable productivity gains remain limited. Most firms aren’t replacing workers with AI; they’re experimenting with tools. The real productivity effects will come later. Right now, most organizations are still trying to “figure out how to use” it effectively.

5. College still matters—but the target is moving.
   The issue isn’t whether higher education is needed—it is. The issue is alignment. What we expect from graduates must evolve with the labor market. The economy will demand more skilled, highly educated workers—not fewer—but with different capabilities than before.

AI didn’t cause the hiring slowdown; it gave firms a better story to explain it.

The good news is that our college students and recent graduates will start to see more opportunities.