The U.S. labor market is undergoing a profound transformation, with Goldman Sachs economists forecasting a new era of “jobless growth.” While AI promises significant productivity enhancements and a long-term boost to GDP, it also signals widespread job displacement and a “low-hire, low-fire” environment, compelling investors to rethink traditional economic indicators.
The landscape of the U.S. economy, particularly its labor market, is at an inflection point. Once celebrated for its robust job creation, economists at Goldman Sachs now describe a shift toward “jobless growth,” a phenomenon where the economy expands but with minimal increases in employment. This isn’t just a cyclical downturn; it’s a structural change driven largely by the accelerating adoption of artificial intelligence (AI), promising immense productivity gains while simultaneously reshaping the very nature of work. For savvy investors, understanding this evolving dynamic is crucial for long-term strategy.
Jan Hatzius: A Track Record of Economic Foresight
At the heart of Goldman Sachs‘ analysis is Chief Economist Jan Hatzius, whose predictions have a notable track record. Hatzius famously called the imminent crash of the financial sector in 2008, a projection NBC News lauded as “most accurate.” More recently, in 2022, he was an early voice predicting the U.S. economy’s rare “soft landing.” His current outlook on AI is equally compelling. While bullish on AI‘s long-term benefits for the U.S. economy, he issues a clear warning: AI “will destroy employment in some areas.”
Hatzius sees AI as a significant “productivity enhancer,” expecting a large number of workers to become more productive. This ripple effect is anticipated to turbocharge the entire U.S. economy, which has struggled with middling productivity growth in recent years. Indeed, Goldman Sachs has already adjusted its long-term U.S. GDP growth forecast, partly due to the potential of AI-driven productivity gains. Hatzius estimates that the full impact of AI on U.S. GDP will materialize at the end of the 2020s or the start of the 2030s, potentially leading to a 0.4% GDP boost by as early as 2027, as reported by Fortune.com.
The Dual-Edged Sword of AI: Productivity vs. Displacement
The immediate ability of widely available AI tools to perform tasks traditionally handled by copywriters or graphic designers offers a tangible glimpse into the future. Goldman Sachs analysis from March indicated that some 300 million jobs in the U.S. and Europe could be impacted by AI. Furthermore, the International Monetary Fund estimated that 60% of jobs in developed economies and 40% globally will be affected. While most of these jobs won’t be eliminated entirely, certain tasks—estimated by Goldman Sachs to be 25% to 50% of a job’s workload—will be taken over by automation.
The upside is clear: boosted productivity. A study from MIT Sloan School of Management found that highly skilled workers using generative AI for suitable tasks saw a 40% increase in productivity. However, this is a delicate balance; overextending AI use for advanced tasks can actually decrease productivity by 19%.
From “Jobs Boom” to “Jobless Growth”: A Macroeconomic Pivot
It’s a stark contrast to the “jobs boom” predicted by Goldman Sachs in early 2021, when economists like Joseph Briggs forecast a significant drop in the unemployment rate to 4.1% by the end of that year. This optimism was fueled by vaccine rollouts, massive fiscal stimulus, and a robust rebound in sectors like hospitality. The economy was expected to return to pre-pandemic payroll levels well ahead of schedule, with predictions of over a million jobs added monthly.
However, the narrative has shifted. Economists David Mericle and Pierfrancesco Mei now tackle the phenomenon of “jobless growth,” suggesting it’s likely “the new normal.” This trend aligns with Federal Reserve Chair Jerome Powell‘s description of a “low-hire, low-fire” labor market, where job openings cool without a significant spike in unemployment. This creates a challenging environment, particularly for new entrants like Gen Z and recent college graduates, who struggle to find jobs despite respectable GDP growth.
Understanding the “Beveridge Curve” in a Changing Labor Market
The cooling of job markets, particularly in the U.S., Canada, and the U.K., has been visualized through the “Beveridge Curve.” This curve, which plots the relationship between unemployment and job openings, has been “rotating inwards,” meaning job openings are declining while unemployment rates remain low or even creep slightly lower. This unexpected shift suggests that the process of matching unemployed workers with open positions is becoming more efficient, or that employers are becoming more discerning in their hiring.
Goldman Sachs research indicates that this inward shift is partly due to a recovery in “search intensity” post-pandemic, as unemployed workers increase their application efforts and use more search methods. Data from LinkedIn supports this, showing a 26% increase in applications per job searcher in the U.S. relative to the previous year. This indicates a rebalancing of labor market dynamics, where job openings decline but the efficiency of filling those positions improves, preventing a surge in unemployment.
Drivers of Jobless Growth: AI, Demographics, and Economic Restructuring
The primary engine behind jobless growth is the rapid advancement and adoption of AI. Management teams across many sectors are increasingly focused on leveraging AI to streamline operations and reduce labor costs. This focus on efficiency means that economic growth is generated with fewer new hires, as productivity gains outpace the need for additional human capital.
Beyond AI, demographic trends also play a significant role. Population aging and lower immigration rates are contributing to a modest labor supply growth. This combination—strong productivity from AI and constrained labor supply—solidifies jobless growth as a likely long-term trend. History offers parallels, such as the “jobless recovery” of 2001 after the dot-com bubble burst, where GDP rebounded earlier than employment. Economists often observe that recessions provide companies with an opportunity to restructure and streamline their workforces, an effect that could be amplified by AI‘s capabilities in future downturns.
Implications for Investors and the Future Economy
For investors, this shift presents both risks and opportunities. While healthy output and potentially lower interest rates (driven by central banks responding to subpar job creation) could support asset prices, sustained high unemployment could temper these gains. Sectors outside healthcare are already experiencing weak or negative net job creation, highlighting where investment capital might flow differently. Understanding which industries are most vulnerable to AI-driven automation versus those that can leverage it for exponential growth will be key.
The concept of “job hugging,” where workers cling to existing roles due to fewer new opportunities, could become more entrenched. This contrasts sharply with the “Great Resignation” period, which saw a surge in job hopping and inflated salaries for some workers. The current environment suggests a return to more conservative employment practices. Policymakers face tough choices: how to capture the full economic benefits of AI while mitigating the risks of job displacement and ensuring a resilient labor force. For investors, this means a careful reassessment of traditional economic indicators and a deeper dive into company-specific strategies for AI adoption and workforce management.
Conclusion
The insights from Goldman Sachs economists underscore a fundamental pivot in the U.S. labor market. AI is not merely an incremental technological advancement but a force capable of redefining economic growth. While it promises significant productivity and GDP boosts, the accompanying reality of “jobless growth” and a “low-hire, low-fire” environment demands strategic adaptation. Investors who understand these long-term trends—moving beyond short-term headlines to analyze the structural changes driven by AI and demographics—will be best positioned to navigate the complexities and capitalize on the opportunities of this new economic normal.
