A new Morgan Stanley Research analysis finds that despite rising AI adoption, the technology's impact on the broader labor market remains modest, echoing patterns from past innovation waves that ultimately expanded employment rather than eliminating it.
The clearest evidence of disruption is among workers aged 22 to 27 in highly automatable roles such as analysts, accountants and judicial clerks. Unemployment in this group has risen the most since 2023 in AI-exposed occupations. Beyond that age group, the data show little sign of widespread displacement.
Corporate earnings calls are showing more references to AI "displacement" than "job creation," but Morgan Stanley cautions that "transcript momentum should be read as directional, not definitive proof of incremental job losses."
A review of five major U.S. innovation waves, from the Industrial Revolution through the internet era, found a consistent pattern: each wave displaced some workers and concentrated early gains, but ultimately raised productivity, restructured labor markets and expanded overall employment.
The key variable is speed. If AI adoption accelerates and substitutes for labor rather than complementing it, the outcome could diverge sharply from historical precedent, producing stronger growth but also greater inequality.
Innovation waves are disruptive, capital-intensive and often volatile. But over time, they raise productivity, restructure labor markets, expand output and—when institutions adapt—improve living standards broadly."
Read more via Morgan Stanley
Demand for temporary and contract workers is ticking up, according to the Federal Reserve's latest Beige Book, and economists say it's often a leading indicator that broader hiring is coming. A pattern has emerged, showing that businesses uncertain about the future turn to temp workers to meet near-term demand without committing to permanent hires.
Federal data show temp staffing jobs have been rising for the past six months after falling sharply over the prior four years. Historically, staffing employment falls at the beginning of downturns and rises as conditions begin to improve.
The current uncertainty is being driven by a combination of factors: lingering effects of last year's tariff shock, rising energy costs from the Iran conflict, and questions about how consumers will respond to higher prices.
Small business owners are pulling back on capital spending at rates not seen since the Great Recession, according to the NFIB, but they still sense customer demand, creating conditions where temp hiring makes more sense than permanent headcount additions.
One wild card this cycle is AI. The Beige Book found the technology hadn't yet significantly affected staffing levels, but some businesses said productivity gains had allowed them to delay or reduce hiring.
Read more via Marketplace
The Federal Reserve's latest Beige Book shows employment was "steady to up slightly" across most districts, with labor demand described as stable and hiring focused largely on replacement.
Highlights, by District:
Boston: Employment and wages were "stable on balance," though conditions varied by sector. Staffing firms reported increased demand for temporary contract workers but not direct hires. Health care and life sciences contacts reported an uptick in layoffs, attributed to reduced research funding, AI-driven productivity growth, and cost adjustments.
New York: Employment "held steady" overall. Finance professionals and high-skilled tech workers, especially those with AI skills, were in high demand. AI has reduced demand for entry-level workers performing routine tasks, and hiring remained soft for tech workers and customer service roles more broadly.
Philadelphia: Employment "declined slightly" after increasing modestly last period. Demand for staffing was "slower than the pickup in activity typically experienced for the season." Wage inflation remained at a modest pace, with increases in line with pre-pandemic averages.
Cleveland: Employment "increased slightly on net." Many professional and business services firms added staff to support growth. Contacts reported using AI to increase productivity, though without significant impact on staffing levels. Wage pressures remained moderate, with some contacts describing challenging wage-setting decisions given higher inflation and slow growth.
Richmond: Employment "increased slightly," though increased uncertainty and a desire to conserve cash led some firms to reevaluate labor decisions. Firms with greater certainty made investments and increased head count. Several contacts reported modest wage increases to retain talent and keep pace with inflation.
Atlanta: Employment levels were "largely flat." Most firms held head count steady or hired only for replacement, with very few reports of layoffs. Several contacts reported that AI has already replaced head count or is expected to; others said they are exploring it primarily as a productivity tool. Overall wage growth remained modest, with most firms returning to pre-pandemic increases of two to four percent.
Chicago: Employment was "unchanged," with contacts reporting stable conditions and a wait-and-see approach to hiring. Demand for temporary workers was up as companies hesitated to commit to long-term hires amid uncertainty. Wages rose modestly; benefits costs were up moderately.
St. Louis: Employment levels "remained unchanged." Some contacts reported slowly reducing head count through attrition. Wage growth was moderate, with some contacts noting it had stabilized, though an architectural firm reported wages rising faster than inflation due to a shortage of architects and engineers.
Minneapolis: Employment "rose slightly." Labor demand turned positive in February and March, with both current and future hiring sentiment notably higher than a year ago. Staffing firms reported healthy new job orders. Layoffs remained low, with unemployment claims declining compared with the same period a year ago. Wage growth was moderate, with a staffing firm reporting annual increases of about 3 percent.
Kansas City: Employment was "relatively unchanged." Firms continued to prioritize productivity and workflow optimization, with wage competition remaining limited. Among firms that are hiring, applicant quality has improved. Firms expect employment to increase slightly over the next six months.
Dallas: Employment "edged up," rising slightly in services while remaining flat in manufacturing and energy. Staffing firms noted that elevated uncertainty was making companies hesitant to hire and candidates reluctant to switch jobs. Wage growth remained modest in services but solid in manufacturing.
San Francisco: Employment levels were "generally stable," with most employers hiring only to replace departing workers. Some sectors saw modest declines, including real estate and financial services, which reduced head counts through attrition and following acquisitions. A few contacts reported using generative AI to reduce costs and pause new hiring. Wages continued to rise at a slight pace, in line with typical cost-of-living adjustments.
Read more via Federal Reserve
Powell's term as Fed chair ends May 15, and President Trump wants him replaced with Kevin Warsh. The Senate hasn't confirmed Warsh yet, so Powell has said he'll stay in the job on a temporary basis until a successor is ready. President Trump responded by threatening to fire him if he doesn't leave on his own.
Whether the president actually has the power to fire a Fed chair is genuinely unclear. The law says he can remove Fed officials "for cause," but no president has ever tried it, and no court has ever ruled on whether it's allowed.
A separate fight is making everything messier. The Justice Department is investigating whether the Fed wasted money on a $2.5 billion renovation of its headquarters, and Senator Thom Tillis has said he won't vote to confirm Warsh until that investigation is over. President Trump says he won't drop the probe, meaning the confirmation is stuck.
A federal judge already ruled that the investigation looks less like a real inquiry and more like an attempt to pressure Powell into cutting interest rates or resigning.
Even if President Trump fired Powell as chair, Powell could stay on the Fed's board until 2028 and continue influencing interest rate decisions, meaning a firing wouldn't necessarily give President Trump the control over monetary policy he's looking for.
Read more via The Wall Street Journal, Axios, USA Today
A new pattern is emerging in corporate America: companies are cutting staff in massive waves rather than incremental reductions, getting stock bumps and investor praise in return. Snap just announced 1,000 cuts framed around AI-powered "tiny teams." Block cut 40% of its workforce and saw its stock reverse losses. Oracle shed thousands. Amazon cut 30,000 in months.
Block's CFO said executives from across corporate America reached out after its 40% cut asking for the playbook.
The actual driver may be less AI capability than AI cover. Pandemic-era overhiring and the soaring cost of building AI infrastructure are also significant factors.
The pain is landing hardest on college-educated workers under 35. Unemployment in that group has now surpassed the rate for workers with two-year associate degrees, erasing what economists call the "job-security premium of a bachelor's degree."
Tiny team advocates argue AI lets small groups accomplish what once required large ones. Critics warn the model risks amplifying bias, killing morale, hollowing out talent pipelines, and leaving companies without enough experienced workers to promote.
The winners won't simply be the leanest organizations. They'll be the ones that best redesign work so humans and AI complement each other."
Read more via Business Insider, The Wall Street Journal
The International Monetary Fund lowered its 2026 growth forecast for the eurozone to 1.1% from 1.4%, citing the energy market disruption caused by the closure of the Strait of Hormuz and infrastructure damage across the Middle East. Global inflation expectations have risen to 4.4%.
Europe is among the hardest hit regions given its dependence on imported energy. A 19% spike in energy costs assumed by the IMF poses a significant drag on industrial output across the 21 nations sharing the euro.
The U.S. also saw its growth forecast trimmed to 2.3%, while Russia received a slight upgrade to 1.1% as higher oil export revenues offset other pressures.
Despite a temporary ceasefire, the IMF warned that downside risks remain elevated. If energy volatility persists into 2027, the fund warned of a "severe scenario" where global growth could fall to 2% and central banks would be forced to maintain high interest rates to fight persistent inflation.
Read more via Euronews
GLOBAL ROUNDUP:
Australia: A union representing 25,000 New South Wales council workers has filed an emergency application with the state's Industrial Relations Commission seeking a four-day work week and expanded work-from-home rights, citing soaring fuel costs driven by the Iran conflict. The union says members are spending an extra $50 to $100 per week on fuel and is calling for measures that would be automatically triggered whenever weekly average fuel prices exceed $2 (per liter). (Yahoo News)
Germany: Germany has launched a national initiative called the WE-Fair alliance to recruit roughly 400,000 foreign workers per year over the next decade, as an aging workforce and rising labor demand across industries create a growing structural shortage. More than 20% of the current workforce is aged 55 or older and expected to retire within ten years. The program, backed by the Federal Ministry for Economic Cooperation and Development, aims to build structured training pathways in workers' home countries while addressing retention alongside recruitment. (ETIAS)
Norway: Norway's crude oil exports hit a record high in March, jumping 68% year over year to 57.4 billion kroner as the closure of the Strait of Hormuz drove oil prices to their highest monthly level since September 2023. As Europe's largest oil and gas producer outside Russia, Norway is among the clearest economic winners from the Middle East conflict. (Euronews)
South Korea: South Korea's Ministry of Employment and Labor is launching a pilot program to train workers in AI integration across entire job workflows, responding to a sharp shift in employer expectations. 66% of managers say they would not hire candidates who lack AI skills. The program, which is heavily subsidized and open through a national learning card system, will initially focus on video content production, UI/UX design and publishing, with 113 courses available across 84 training centers nationwide. (Korea Bizwire)
United Kingdom: A planned overhaul of how the U.K. collects labor market data has been pushed back from 2026 to 2027, highlighting a broader problem with government economic statistics that economists say affects the U.S. as well. Gig workers, zero-hours contracts, self-employed individuals and subcontractors are largely invisible in official jobs figures, and policy changes like last year's national insurance increases distort the numbers further. One labor economist summarized the problem as "analogue economics in a digital monetary world," arguing that the technology exists to provide near real-time inflation data but governments haven't built the systems to use it. (MarketWatch)
