April 25, 2024
The US labor market is being shaped by three intersecting trends: two of them long-term and the third cyclical. Generative artificial intelligence is poised to automate nearly a quarter of jobs across all industries. The effects of AI will be felt on a workforce that is already “fractionalized,” in which part-time roles supplement or replace full-time ones.
Those two megatrends feed into a slowing job market. Goldman Sachs Research expects US unemployment to rise over the next 12 months. In combination, these three forces will profoundly change how US companies recruit and retain talent in the near future.
How AI will transform staffing and recruiting
Around 4% of all US firms have adopted generative AI, but Goldman Sachs Research expects that figure to rise to 7% over the next six months. The rapid clip will be led by some sectors more than others. In information services, for instance, the adoption rate is forecast to rise from 16% to 23% in that half-year period.
The effects of this shift will be seen clearly in online job marketplaces. Some types of work, such as logo design, copywriting, translation, or voice-over artistry, could be displaced by free or cheap AI tools in those categories. “That said, it is just as likely that new types of jobs or categories will be created as a result of AI,” writes George Tong, a senior research analyst at Goldman Sachs Research, in his team’s report.
Generative AI can also improve the efficiency of recruiters in tasks such as enhancing job descriptions, formatting resumes, ranking candidates, and conducting initial interviews. “Screening applicant information such as resumes remains inefficient, with approximately 52% of talent acquisition leaders stating that the most challenging element of recruiting is candidate identification from large pools,” Tong writes.
Additionally, job marketplaces can use AI tools to offer private-label services of their own for tasks such as logo design, translation, and voice-over work. Some of the AI engines to perform such work already exist, and some marketplaces have started to implement them.
A reorientation of the labor market
Since its peak at the turn of the century, the US labor participation rate has been in steady decline, dipping from 67.3% in January 2000 to 62.7% in March 2024. Baby boomers left the workforce, labor markets weakened after the Global Financial Crisis, college enrollments increased, and early retirements rose during Covid.
Labor churn, or the velocity of job changes, has been rising as well. Quit rates rose from 2010 to 2019, and the pandemic “led to inflows of millions of new gig workers as unemployment rose or work hours were reduced, and people turned to gig work to augment their incomes,” Tong and his team found.
Companies too found value in a more flexible workforce, turning to freelancers, gig workers, and temps to supplement or replace their full-time employees. The share of US professionals who freelance increased from 34% in 2014 to 38% in 2023. Meanwhile, temp workers, typically brought on for short-term assignments at a single client, have seen their penetration rise in the US from 1.06% in January 1990 to 1.74% in March 2024. This fractionalization of the labor force is likely to continue, Goldman Sachs Research predicts.
Where are we in the employment cycle?
Typically, temp staffing leads the broader macro and labor market by two to four quarters, because employers generally reduce temp headcount first when downsizing ahead of a macro slowdown. At the moment, temp penetration is in decline.
“US temp penetration contracted in March, reinforcing our negative stance on the temp staffers as well as the broader US labor market,” Goldman Sachs Research finds. Temp penetration dipped to 1.74% in March from 1.75% in February, and has been on a broader downward trajectory since March 2022, when temp penetration registered 2.1%.
“With increasing instances of hiring freezes and corporate downsizing, we expect demand for labor to soften and the supply of labor to increase,” our analysts write.
On the job platform Indeed, total job posting volumes year-to-date pulled back the most for blue-collar and clerical verticals, including construction, manufacturing, and retail. Volumes in white-collar and highly skilled verticals, including software development, banking, finance, and marketing showed some signs of stability after declining sharply over the past two years.
Since the start of the year, job postings as a percentage of pre-Covid levels declined 18 percentage points in construction, 15 percentage points in manufacturing, and 12 percentage points in retail. The number of job openings declined 11% year-on-year in February 2024, with year-on-year declines appearing since August 2022.
“Based on this mosaic, we conclude that the US labor market is in its mid-to-late cyclical stages that will see unemployment rise and non-farm employment decline over the next four quarters,” Goldman Sachs Research writes.
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