Young workers have seen their employment prospects erode sharply since the U.S. labor market peaked in April 2023, but the primary culprit isn't artificial intelligence—it's the overall slowdown in hiring, according to a new study published by the Federal Reserve Bank of St. Louis. The report, released in June 2026 as part of a three-part series on young adult labor challenges, examined five supply and demand factors to explain why employment opportunities have weakened most dramatically for workers ages 18 to 24. While AI plays a role, the analysis shows it's a smaller piece of a larger cyclical story.

Between April 2023 and December 2025, the employment-to-population ratio for 18- to 24-year-olds fell by more than 2 percentage points, their unemployment rate rose 3.51 percentage points, and their labor force participation rate dropped 0.35 percentage points. By contrast, workers ages 25 to 64 saw their employment-to-population ratio increase by 0.15 percentage points and their unemployment rate rise just 0.63 percentage points. Recent college graduates were hit particularly hard: their employment-to-population ratio fell 3.23 percentage points, their unemployment rate climbed 1.98 percentage points, and their labor force participation rate declined 1.58 percentage points. In the Eighth Federal Reserve District—covering Arkansas, most of Missouri, and parts of Illinois, Indiana, Kentucky, Mississippi, and Tennessee—AI job demand accounted for nearly half of the increase in young workers' unemployment rate. Among Black new entrants with no more than a high school diploma, the employment-to-population ratio fell 6.27 percentage points while their unemployment rate surged 12.75 percentage points.

The report finds that "the decline in overall labor demand, as measured by job openings, accounts for most of the deterioration in young workers' outcomes." For recent college graduates specifically, falling overall job openings explained more of their unemployment increase than any other factor the researchers examined. The study notes that "AI is not eliminating jobs across the wider U.S. economy; rather, it appears to be raising the bar more narrowly for younger workers trying to secure a foothold in a slowing labor market." Using job-posting data from Lightcast, researchers classified a posting as AI-related if it required skills from one of 10 AI skill clusters, including generative AI, machine learning, and neural networks—capturing how job content is changing, not whether firms are using AI to automate or screen applicants.

The research reveals that young workers are trapped in what the authors call a "low-hire, low-fire" economy, where companies hold onto existing employees but pull back on bringing new workers aboard. This dynamic hits labor market entrants hardest because they depend on active hiring to get their first job. For recent college graduates nationally, demand for AI jobs accounted for roughly 45% of their employment-to-population ratio decline and one-third of their unemployment rate increase. The report explains that AI demand can raise unemployment for young adults because it increases skill requirements for entry-level positions, reducing access for workers who rely on initial hiring. Other factors the study examined—changes in the foreign-born population, manufacturing contraction, and shifts in women's federal employment—explained little to none of the erosion in young workers' outcomes, either because they moved too late in the period or affected groups not concentrated at labor market entry points.

The report concludes that AI matters at this stage of adoption, "but in a narrow, early and age-specific way." Even as recent graduates maintained relatively high employment rates—79% nationally and 82% in Eighth District states in the first quarter of 2026—their lack of experience and concentration in entry-level roles put them at risk as job requirements shift toward AI tasks. The deterioration among young workers appeared primarily as higher unemployment rather than exits from the labor force, indicating they're still searching for jobs but finding fewer opportunities available. The takeaway is clear: AI isn't destroying the job market, but it's making the first rung of the ladder harder to reach just as employers are building fewer ladders overall.