AI Disrupts Tech Hiring as Tariffs Add Pressure: What It Means for the Job Market
The slowdown in the U.S. job market, which many economists expect to show up in the May employment report, isn’t just about tariffs linked to former President Donald Trump’s policies. A major force behind the change? Artificial intelligence.
AI is fundamentally reshaping the way tech companies hire. Economists and staffing firms are pointing to a growing trend: fewer new hires, especially among recent college graduates, and more layoffs across the sector. According to Oxford Economics, the tech hiring slowdown has become a key driver of rising unemployment—especially among young professionals seeking entry-level roles that are increasingly being automated.
Oxford Senior Economist Matthew Martin says the situation is being worsened by tariffs that may spark inflation and reduce consumer spending, further chilling job growth.
“Clearly, something is shifting,” Martin noted. “Entry-level jobs have declined markedly.”
The Current Job Market in Numbers
Friday’s employment report from the Labor Department is expected to show the U.S. added about 125,000 jobs in May—a decline from the 181,000 average seen over the prior two months. Unemployment is projected to stay at 4.2%, still low by historical standards.
Still, job growth has slowed steadily since the post-pandemic hiring surge. Persistently high labor costs and elevated interest rates are eating into company profits. Now, with tariffs triggering fresh uncertainty, many businesses are pulling back even further.
Martin emphasized that beyond these external shocks, a structural shift in hiring practices—driven largely by AI—is also reshaping the labor market in ways that are just beginning to be understood.
A Tough Time for Recent Graduates
Between April 2022 and March 2025, the unemployment rate among recent college graduates aged 22 to 27 jumped from 3.9% to 5.8%, surpassing the jobless rate for all U.S. workers, which climbed from 3.7% to 4%, according to the Federal Reserve Bank of New York. This reverses a longstanding trend where college grads typically enjoyed better employment prospects.
For all college graduates, the unemployment rate stood at a lower 2.7% in March. However, entry-level tech jobs are vanishing. The Oxford Economics report reveals that while professional and technical services—especially in IT—saw large employment gains for younger graduates over the past two decades, since 2022, IT employment for the 22–27 age group has dropped 8%. In contrast, older grads saw a slight 0.8% increase.
More broadly, job openings in professional and business services have fallen by up to 1.5 million in the past two years.
Oxford’s data shows that since mid-2023, the struggles of recent grads account for 12% of the rise in the overall U.S. unemployment rate—from 3.6% to 4.2%.
Is There Still Demand for Tech Talent?
Demand for tech roles hasn’t vanished, but it has shifted. Kye Mitchell, head of Experis U.S. at ManpowerGroup, explains that many companies are now hiring only half as many software developers as before. Why? AI has taken over much of the routine coding work.
Now, the focus is on specialists—data scientists, AI coaches, and data architects—who can train and refine AI systems. While some developers are upskilling for these roles, the transition has reduced opportunities for entry-level candidates in the short term.
This cautious hiring approach, driven by the need to cut costs and reduce exposure to geopolitical instability, is being exacerbated by trade tensions.
“People are cautious,” Mitchell said. “AI is making it tougher for recent college grads.”
Her advice to IT majors? Focus on analytics and niche tech skills. Broad, generalist knowledge just doesn’t cut it anymore.
Layoffs Replace New Hires
At the same time, large tech firms are trimming their workforces, particularly in roles that can be automated—admin, customer service, and data entry. Microsoft recently announced 6,000 global layoffs, with CEO Satya Nadella noting that AI now handles about 30% of the company’s coding workload.
Other tech giants like Google and Salesforce have made similar moves—rolling out major AI initiatives alongside job cuts, according to tech.co.
Historically, disruptive technologies tend to eliminate some jobs but eventually create new ones, fueling productivity and growth. But with AI evolving so rapidly, many experts aren’t sure the same pattern will hold this time.
“We’ve never been in this age,” Mitchell said. “People are really unsure.”
Looking ahead, the McKinsey Global Institute projects that up to 30% of work hours in the U.S. could be automated by 2030—a transformation accelerated by AI. Whether the job market can adapt in time remains to be seen.