Could AI Be More About Retraining Than Replacing? New York Fed Sees Only Modest Job Impact So Far

Highlights

• AI adoption jumps to 40% in service firms and 26% in manufacturers in the New York Fed district.

• Layoffs due to AI remain rare; retraining and selective hiring dominate so far.

• Firms foresee more layoffs and slower hiring as AI integration deepens.

The Federal Reserve Bank of New York’s latest regional survey signals a surprisingly muted effect of artificial intelligence on employment to date. Despite a steep rise in adoption across sectors, AI has yet to significantly disrupt job markets. Instead, current trends suggest a more nuanced reshaping—dominated by retraining, targeted hiring, and prospective caution.

Rising AI Adoption Across Industries

In the New York–Northern New Jersey region, AI usage has surged over the past year. Among service-sector businesses, adoption climbed from 25% to 40%, while manufacturing firms increased usage from 16% to 26%. Looking ahead, nearly half of all service firms and about one-third of manufacturers plan to bring AI systems on board within the next six months.

Such widespread uptake reflects a broader industry trend. Firms are leveraging AI for tasks ranging from marketing and analytics to customer service and workflow optimization—all of which suggest AI is expanding into core operational functions rather than remaining a peripheral tool.

Retraining Rather Than Replacing

Despite fears that AI would trigger swift job losses, layoffs tied specifically to AI remain minimal. Only about 1% of service firms reported AI-induced layoffs in the past six months—down sharply from 10% in last year’s survey. Manufacturers reported zero layoffs due to AI. Instead, retraining existing staff to work alongside AI appears to be the dominant adaptation: roughly one-third of service-sector AI users and 14% of manufacturing firms are already retraining workers.

Interestingly, firms are also adjusting hiring patterns based on AI use. About 12% of service firms reduced hiring due to AI, with expectations that nearly 25% will do the same in the coming months. Despite this, some employers are actively seeking new employees with AI-related competencies—11% of service firms and 7% of manufacturers have hired new workers because of AI use, with plans for more such hiring ahead.

Workforce Implications: A Dual-Edged Shift

The current effects appear modest in aggregate, largely because AI is still in early stages of deployment across a fraction of firms. However, the gradual shifts suggest that the impact could intensify over time once integration deepens.

Moreover, the hiring slowdown is concentrated among jobs requiring a college degree—raising concerns that recent graduates may face heightened difficulty entering the workforce. Indeed, data indicate that unemployment for degree holders aged 22–27 has risen to 5.8%, outpacing the national unemployment rate of 4.2%.

Comparable Research and Historical Context

This measured impact corroborates a broader economic pattern observed historically: new technologies often shift labor dynamics gradually rather than wreak widespread immediate disruption. Economists note that AI resembles general-purpose technologies such as computers, which reshaped tasks without instantly eliminating jobs on a large scale.

Academic research increasingly reinforces this; recent studies suggest AI is creating more demand for complementary human skills like digital literacy, teamwork, and resilience—not simply displacing roles. Surveys across both firms and workers estimate AI use between 20% and 40%, with uptake accelerating but displacement still limited.

Looking Ahead

As firms deepen AI integration, the labor market may face heightened pressure in hiring and retention. Organizations and policymakers must proactively monitor retraining efforts, shifts in educational outcomes, and employment opportunities for recent graduates. The key question remains whether AI becomes a tool for workforce augmentation—enhancing productivity and skill demand—or if increasingly deep automation begins displacing key segments of labor.