AI and the labour market: job cuts at the top, a shrinking door at the bottom

US employers shed 23,000 jobs in July, the Bureau of Labor Statistics said on 7 August. That was the first decline since February. The unemployment rate ticked down to 4.1%. May and June were revised to gains of 63,000 and 20,000 respectively, so the labour market was already softer than first estimated.

Average hourly earnings rose 2 cents to $37.62 and are up 3.2% over 12 months, below the 3.5% year-on-year consumer price increase recorded in June. Health care was the only sector with notable gains, adding 22,000 roles, though that is below its 36,000 monthly average over the past year. Local government education fell by 50,000, retail trade shed 19,000 and financial activities lost 14,000. ADP's National Employment Report, released on 5 August, told a different story: it suggested private employers added 44,000 jobs. The two surveys do not have to agree, but the gap is worth noting.

ZipRecruiter labour economist Nicole Bachaud said in a note to USA TODAY that "with job opportunities remaining scarce, more workers are exiting the labour market entirely." The labour force participation rate fell to 61.4%, the lowest since February 2021. LinkedIn's head of economics for the Americas, Kory Kantenga, told the same outlet: "This is not a labor market that's reacceleration despite speculation to the contrary earlier this year."

Low-hire, low-fire, and a record-low mood

The "low-hire, low-fire" dynamic that economists said defined the US market in 2025 may be back, USA TODAY reported. Labour Department data released on 4 August showed the quits rate, layoffs and job openings were little changed in June. Glassdoor's Employee Confidence Index fell to a record low in July. The share of employees reporting a positive six-month business outlook sank to 43.5%. Daniel Zhao, Glassdoor's chief economist, said that even employed workers worry about landing their next role or a raise.

Announced job cuts fell to 33,429 in July, down 27% from June and the lowest monthly total in two years, according to a Challenger, Gray & Christmas report released on 6 August. For the fifth straight month, artificial intelligence led all reasons companies cited for cuts.

Announced hiring plans, meanwhile, rose 47% from June to 16,095, the highest since 2022. Andy Challenger, the firm's chief revenue officer, said in a statement that demand is showing up in aerospace, energy and manufacturing, "work that happens on a floor rather than a screen." Those two numbers sit awkwardly together. Companies are announcing fewer layoffs than a year ago and more hiring plans, yet the actual payroll count fell. Announced plans are not hires, and the BLS establishment survey counts what happened, not what was promised.

The bottom of the ladder, in Turkey

At the other end of the market, the entry-level door is narrowing. Windows Central reported on 12 August on a Rest of World investigation into Turkey's game development sector, which grew to more than 800 studios at its peak and served as a pipeline for juniors. One developer interviewed by Rest of World went from a large studio shipping a game a week to founding his own studio. With Claude Code, he found he needed just two employees to reach similar productivity.

The result, per Windows Central: entry-level jobs are disappearing at smaller studios, and larger studios are reluctant to hire inexperienced developers. A university director in Turkey now warns students against the traditional path of starting in an introductory role. Build your own games while still in school instead, he tells them.

The same article notes that Microsoft has said AI is not being used to replace the most recent batch of laid-off Xbox employees, while the company's overall spending on AI infrastructure has played a role in cuts to underperforming sectors. Xbox announced in July its biggest downsizing ever, cutting 3,200 jobs across 2026 and 2027.

What graduates are walking into

CNBC reported on 25 September that college graduates aged 22 to 27 had an unemployment rate of 5.7% as of June 2026, according to the Federal Reserve Bank of New York. That is a full percentage point higher than two years earlier for that cohort. The unemployment rate for all young workers was 7.2%. The underemployment rate for recent graduates, meaning those working in jobs that do not require a bachelor's degree, reached 42%, against 33.7% for all college graduates.

Hiring itself is being automated. Sixty-six percent of recruiters said at the start of 2026 they planned to increase their use of AI for pre-screening interviews, according to LinkedIn research cited by CNBC, while 81% of job seekers said they had used or planned to use AI in their search. The National Association of Colleges and Employers found AI skills cited in 16.5% of job descriptions in the spring, up from 10.5% the previous autumn, with 28% of employers seeking early-career talent who can use AI. NACE president and CEO Shawn VanDerziel called the gap between those expectations and student attitudes a "striking disconnect."

The evidence on whether AI is causing the entry-level slowdown is not settled. The New York Fed found an overall hiring slowdown but not one concentrated in entry-level jobs with higher AI exposure. "While AI may be contributing to recent labor market developments, it is not the main driver of the slowdown in hiring," it wrote. Its employer surveys found firms "mostly intend to incorporate AI mainly via retraining, with limited effects on hiring."

Pew Research Center found the politics shifting underneath all of this. In a June survey of 3,488 US adults, 56% of Democrats said they were more concerned than excited about AI's increased use in daily life, against about half of Republicans. That is the first time Democrats have been more concerned than Republicans. Among liberal Democrats, concern rose from 45% in 2023 to 63%, while it fell 14 points among conservative Republicans.

Democrats are also now more likely than Republicans to predict AI will lead to fewer jobs over the next 20 years, 75% against 68%, a reversal from two years earlier. One thread runs through the data: the pain is not evenly spread. Blue-collar work tied to data centre construction is booming, as CNBC reported on 26 September, with welder and pipefitter postings up 164% year over year and an apprentice-level technician earning $40,000 to $60,000. But that demand is exposed to a backlash. Gallup found 70% of Americans oppose a data centre in their local area, and Data Center Watch counts at least 75 projects worth roughly $130 billion blocked or delayed this year. The top of the market is cutting, the bottom is closing, and the middle is waiting to see which way it goes.