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:
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.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.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.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.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.
This article provides a comprehensive analysis of current labor market dynamics, particularly regarding young college graduates. I appreciate how it highlights the complexities behind the tight labor market, such as the dual challenges of low hiring and low firing. The discussion around the impact of AI on hiring practices is particularly insightful, as it captures how companies are navigating uncertainty while still investing in technology. One constructive criticism is to delve deeper into specific strategies that educational institutions could adopt to better align their offerings with the evolving demands of the job market. This could provide actionable insights for both graduates and employers.
Staying topical, I have 4 pairs of AllBird running shoes and now they are an AI play? Simply because they went SPAC and it drove the share price 580%. IRRATIONAL!!! We're overvaluing the enterprise without any understanding of the earning potential.
Machine learning has been around since the 1950's and a freind of my mother wrote his Dissertation on the topic in 1970. The spector of AI is today's version of the Cotton Gin or any Industrial Revolution tech improvement. Lot's of noise created by 1st Mover Distortions and those fearing displacement. With AI, it hasn't happened other than rudimentary data skills, but the data voids still exist requiring a human to confirm the output.
The investment cycle is the employment concern, in my opinion. Looked at RAM lately? I wanted to upgrade my gaming rig and 64Gb of DDR5 is $800. I made the mistake of waiting last September hoping for a Amazon deal for xmas, never happen. Should have spent the $200 back then!
Possibly mid-tier companies are not hiring 2-3 positions to fund purchasing, but they also don't know how that workflow is going to be affected by AI, so Inertia Bias is clouding movement.