What tidings will AI provide for workers in 2026?

It is a big deal when a technology trend spills into the economic press. Yesterday, Federal Reserve Chair Jerome Powell was asked about the economic effects of AI at the press conference following the Federal Open Market Committee meeting, which decided to cut interest rates by a quarter of a percentage point.

Powell discussed AI’s impact on productivity and growth, noting that AI and automation are contributing to a “structural” boom in the U.S. economy, with productivity consistently above 2% — a level he “never thought” he would see. It’s this productivity that he said he sees as the primary reason for the Fed’s more substantial economic forecast in 2026.

He also addressed the potential labor-market implications as automation and AI displace certain job categories — including white-collar jobs. While he acknowledged that companies are using AI for hiring freezes and layoffs, he said that despite these reports, unemployment claims remain low, reflecting what he calls a “low hire and fire” economy.

Contradictory employment signals in the age of AI

Without question, early-career professionals are facing a disproportionate AI disruption, with sharp declines in entry-level jobs. Payroll-level research from Stanford University researchers Erik Brynjolfsson, Bharat Chandar, and Ruyu Chen using data from ADP shows real-time shifts in employment patterns through July 2025. ADP is a multinational company that provides HR and payroll services; the data sample comprises millions of employees from tens of thousands of firms.

The researchers’ most striking finding: Early-career workers (ages 22–25) in occupations most exposed to AI, such as software developers and customer service representatives, have experienced a 13% relative decline in employment since late 2022. By contrast, employment for more experienced workers in the same jobs has remained stable — or even grown.

The authors suggest that AI disproportionately replaces codified knowledge — the formal training and “book learning” that recent graduates bring to the table. By contrast, it is less capable of displacing tacit knowledge — the practical judgment, intuition and experience that accumulate over time. This helps explain why older workers are holding their ground while younger employees are losing traction.

In a recent InformationWeek article, I shared the consensus from the CIOs I had interviewed over the past year on AI’s impact: Agentic AI was already reducing task times — sometimes in half — reshaping how work gets done and putting pressure on labor models. Some roles were shrinking, while others were fundamentally redefined.

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Bottom line: AI has the capabilities to affect a major portion of the labor market. An MIT study that applied 32,000 skills across 923 occupations in 3,000 counties found that 11.7% of the U.S. labor market could be replaced by current AI capabilities. These findings are troubling, especially for younger workers whose job experience and knowledge may be suited to the enterprise jobs being augmented — but not replaced — by AI.

EY Pulse Survey: AI productivity gains are not producing layoffs

Confirming Powell’s remarks on a stable layoff rate, the EY U.S. AI Pulse Survey shows that enterprises are largely choosing to reinvest AI-driven productivity gains, rather than reduce existing headcount. The survey polled 500 senior leaders (i.e., decision-makers in senior vice president-level roles and higher) across various industries, with data collected from April to October 2025.

When asked how their organizations were reinvesting these AI-driven productivity gains, these leaders cited the following areas:

Only 17% say gains are being used for headcount reduction. Notably, the EY data aligns with findings from Dresner Advisory Service research on agentic AI, which shows that firms with mature data processes are looking to use agentic AI broadly for transformation, rather than simply for cost reduction. The data suggests that many of the firms focused only on using AI for headcount reduction have not invested in the foundational technologies needed to take advantage of what AI offers.

This is important news for CIOs, because it implies that CIOs will be beneficiaries (not casualties) of the productivity gains.

Strong ROI and confidence in further AI investment

For those companies that have put AI technologies into production, the return on investment has been significant, according to the EY survey. In addition to the productivity gains cited above, survey respondents reported the following positive outcomes from using AI:

Two other survey points of note: Senior leaders’ focus on responsible AI has increased — commitment to ethical AI operations is growing — and transparency with customers about AI use is rising.

Parting words

AI is fundamentally changing the workforce and how work is done. Early adopters that have industrialized their data and processes are playing to win — not to seek simply short-term gains. These successful early adopters have strategic coherence — they have a clear company-wide plan for AI. They are using it to fortify their competitive advantage within their markets, rather than pursuing quick, isolated gains.

Given this, the tidings — to use a seasonal phrase — are not bad for people at organizations that have their AI acts together. And for the Gen Z workforce, who are facing significant job pressure in entry-level jobs, these are the organizations where you should be focusing. They are the ones that will be hiring and retaining talent as we head into the new year.