The Gen Z Employment Crisis (Part 2) – AI Displacement is Here
The economic storm of the century is brewing. Here's how AI is displacing Gen Z before they've even had a chance to start their careers.
In 1997, Gary Kasparov famously lost to IBM’s Deep Blue in a game of chess. But even though computing was rapidly advancing it hadn’t quite opened Pandora’s Box just yet.
That changed in 2016.
Lee Sedol, one of the world’s top Go players, took on AlphaGo, a computer program developed by AI startup DeepMind. Sedol lost. A few years later, he announced his retirement from Go. In an interview with a Korean news agency he said:
With the debut of AI in Go games, I've realized that I'm not at the top even if I become the number one through frantic efforts.
Where Kasparov confirmed what was believed to be possible with computers, Sedol marked a new frontier. A computer program wasn’t just something to be written, it could be taught to think and learn just like a human.
The AI revolution was officially underway but hardly anyone noticed. Unless you were working on artificial intelligence in the 2010s, you probably never even heard about AlphaGo’s defeat of Lee Sedol. This was 2016 after all, the American press was embroiled in a bitter war with the country’s new president, Donald Trump.
The AI revolution has been underway for almost a decade now. But it wasn’t until ChatGPT’s release on November 23, 2022 that it finally became accessible to the general public.
With all technological revolutions, human workers are displaced. Sometimes the displacement is short-term as workers move to new emerging opportunities. And sometimes technology renders entire industries obsolete.
Artificial intelligence is no different. Just as the printing press made it unnecessary for monks to handwrite the Bible, artificial intelligence will make many tasks irrelevant for workers today.
But unlike the past where machines replaced physical human effort, AI is poised to replace human cognitive labor. If current projections are to be believed, we are about two years away from AI surpassing the average human’s intellect.
Because of nothing more than the misfortune of the year of their birth, Gen Z is trapped in one of the greatest – if not the greatest – transitions in human civilization.
Companies are already beginning to replace workers with AI. Entry-level jobs – the jobs Gen Z would typically take – are rapidly disappearing.
AI is poised to take millions of jobs. This is bad for knowledge workers but it’s arguably worse for Gen Z.
The oldest Gen Zers were born when Gary Kasparov lost to Deep Blue. They were starting college when Lee Sedol was defeated by AlphaGo. The youngest – born in 2012 – are barely teenagers. Just as my generation was oblivious to the impact the 2008 Financial Crisis would have on our lives today, Gen Z has no capacity to prepare for what’s to come.
Aside from the structural economic problems handicapping the labor market, future expectations about the proliferation of artificial intelligence have changed Gen Z’s prospects for employment. Derek Thompson argues in The Atlantic that a weak job market for recent grads is a sign that AI’s transformation of the economy is already underway:
As law firms leaned on AI for more paralegal work, and consulting firms realized that five 22-year-olds with ChatGPT could do the work of 20 recent grads, and tech firms turned over their software programming to a handful of superstars working with AI co-pilots, the entry level of America’s white-collar economy would contract.
This isn’t just theoretical speculation, it’s confirmed in the job market. Look to Wall Street as an example. Within the next few years, Wall Street plans to eliminate 200,000 jobs, many of which will be entry-level positions. AI isn’t perfect, but it’s good enough to do the work a 22-year-old fresh out of college would be expected to do.
Just last year the New York Times had this to say about entry-level jobs on Wall Street:
The jobs most immediately at risk are those performed by analysts at the bottom rung of the investment banking business, who put in endless hours to learn the building blocks of corporate finance, including the intricacies of mergers, public offerings and bond deals. Now, A.I. can do much of that work speedily and with considerably less whining.
Are Entry-Level Jobs Becoming Obsolete? Wall Street Says Yes.
A headline on LinkedIn recently caught my eye: The Worst Part of a Wall Street Career May Be Coming to an End. The article suggests that artificial intelligence is about to take away much of the grunt work that used to be a “right of passage” for entry-level workers in the finance industry:
Now with AI agents coming online, displacement is about to happen at a far faster rate. Companies like Duolingo and Shopify have already adopted AI-First policies. These companies will only increase their headcount if AI can’t do the job first. Employers want AI literate workers in their ranks – not more college degrees.
Meanwhile AI forward companies like IBM are actively replacing workers with AI. IBM’s chief executive recently told the Wall Street Journal that the company:
Has used artificial intelligence, and specifically AI agents, to replace the work of a couple hundred human resources workers.
While IBM and Salesforce have created positions to sell their AI agent capabilities, those jobs come with a shelf-life. A career built on selling tools that lead to cognitive labor displacement can only last for so long.
The early stages of AI job displacement are here. If Gen Z doesn’t have a job by now, they’re probably not going to get one.
But not all jobs are being displaced by AI. Entry-level jobs still exist but they’re increasingly difficult to access thanks to automated recruiting processes.
The problem isn’t just that AI agents are eliminating the need to hire entry-level workers. Because AI is used in the hiring process itself, it’s creating a barrier to employment opportunities altogether.
As I wrote in the first essay in this series, a Gen Z YouTuber completed 800 applications before landing a role in data entry. A Millennial writer here on Substack shared his experience looking for work after being laid off:
Landing an interview feels like a miracle. I suspect my resume is filtered out of consideration by some half-baked AI `candidate finder service` because my resume doesn’t mention enough hyper-specific bleeding-edge AI terms. If I make it past the screener bots, I’m up against the other 1,000 applicants (bots, foreign nationals, and other displaced-by-AI tech workers) who have applied within the first 2 hours of a job posting going live.
Over the last decade or so, recruiting has become less human. HR departments have been sold tools to make hiring more efficient, but in doing so, they’ve created screens that are impossible for applicants to get past.
Back in 2023, I wanted to understand the labor shortage plaguing hourly employers, specifically at fast food establishments. I went through the process of applying to jobs at places like McDonald’s, Wendy’s, and Hardee’s.
All of these establishments used an AI-powered screening tool. The application for these types of roles was unnecessarily complex. These businesses clearly needed workers yet even when I physically showed up asking for a job, there was no one on site with the power to hire me. Everything had been delegated to AI.
This is happening at all levels of the labor market.
By adopting screening tools to make their jobs easier, HR departments have inadvertently made the process of finding work more difficult. Even if you think you can outsmart all the tools by using AI to fill out your applications, one software engineer showed there’s a 0.4% success rate.
You’ll need to invest thousands of hours applying to thousands of positions only to get a handful of interviews that may not even lead to a real job in the first place.
Now, companies like IBM are confirming what most people have anticipated: HR will eventually be completely outsourced to AI. What happens when AI disqualifies competent workers. And more importantly, what happens when AI begins hiring itself?
Companies are gearing up for the inevitable rise of AI. They’re looking for efficiency gains, cutting employment opportunities in the process.
Even if companies aren’t displacing entry-level workers with AI just yet, they’re preparing to do so very soon.
In 2023, Spotify CEO Daniel Ek released a memo justifying the company’s latest round of layoffs. In it he wrote:
When we look back on 2022 and 2023, it has truly been impressive what we have accomplished. But, at the same time, the reality is much of this output was linked to having more resources. By most metrics, we were more productive but less efficient. We need to be both. While we have done some work to mitigate this challenge and become more efficient in 2023, we still have a ways to go before we are both productive and efficient. Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact. More people need to be focused on delivering for our key stakeholders — creators and consumers. In two words, we have to become relentlessly resourceful. (Tomorrow Today)
To get ready for AI, companies like Spotify are eliminating jobs that do “work around the work.” These are people in roles that spend more time sitting in meetings or moving graphics on slide decks than they’re spending generating revenue for the company.
Case in point:
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Increasing productivity is part of efficiency cuts. Experienced Gen X and Millennial workers with digital savvy can already do more work than their Boomer predecessors who are making decisions about human capital investments. Gen Z isn’t really needed to do the entry-level tasks younger workers used to be expected to do.
But it’s not just that. To stay competitive companies will need to invest in AI. And that investment comes at a cost. Companies who cut their overhead free up capital that they can allocate towards current and future AI investment.
Look at Wendy’s. The company has invested $53 million in its digital strategy which includes adding digital menu boards with dynamic pricing and using AI in its drive-thrus. It’s unsurprising that Wendy’s and other companies like Walmart have been announcing corporate layoffs just as they begin implementing new AI-powered strategies.
Even if AI isn’t taking Gen Z jobs just yet, the prospect of AI taking jobs tomorrow is enough to reduce employment opportunities today.
In the first essay in this series I talked about how recent history has shaped the job market Gen Z is expected to participate in today. While many employers are still grappling with the consequences of the 2008 Financial Crisis, they’re simultaneously being pushed from the future. If companies don’t start preparing now, they’re going to get left behind.
This is fundamentally reshaping what the future of work looks like. Anyone who is a working age adult in a white collar office job is going to be affected. But Gen Z is going to be far more at risk because they have little to offer. They have no work experience, skills the job market no longer wants, and the current culture on university campuses has made many Gen Zers adversarial to the idea of work in the first place.
All of this is compounded by the fact that not all of Gen Z is in adulthood yet. Millions continue enrolling in college without the prospect of a job once they graduate. If you think older Gen Zers are having a rough time in the job market, you can only imagine what will be in store for the Class of 2029 and beyond.
Unfortunately, Gen Z isn’t helping themselves either. Changes in culture are simultaneously changing the nature of work as the economy restructures around artificial intelligence. Even if they could get a job, it’s unclear that they would even want one anyway.
Continue Reading
The Gen Z Employment Crisis (Part 1) – Structural Fault Lines
Gen Z is struggling. They’re not dating. They’re not living on their own. And they’re not working.
The Gen Z Employment Crisis (Part 3) – Incompatible
This is a subscriber-only essay in a four-part series about the Gen Z employment crisis. Become a subscriber to read the full series.
The Gen Z Employment Crisis (Part 4) – Economic Impact
This is a subscriber-only essay in a four-part series about the Gen Z employment crisis. Become a subscriber to read the full series.
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I can’t wait to read part three.
Another fantastic installment, Amanda. I've seen this displacement coming for a while (although I didn't anticipate AI, I could see that the fiat Ponzi scheme economy was nearing its expiration date and our youngest generations would be crushed). I've been advising my 16-year old son to prepare enroll in community college for a career in a trade (e.g., welder, electrician, plumber, carpenter). The era of prestigious college degrees is officially over. Manual labor is really about the only thing that can't be displaced by AI -- yet. I'm sure homes built by 3-D printers are coming at some point ;-)