The swift advancement of artificial intelligence (AI) has sparked significant concern that this new technology will replace jobs and stifle hiring. To explore the effects of AI on employment, our August regional business surveys asked firms about their adoption of AI and if they had made any corresponding adjustments to their workforces. Businesses reported a notable increase in AI use over the past year, yet very few firms reported AI-induced layoffs. Indeed, for those already employed, our results indicate AI is more likely to result in retraining than job loss, similar to our findings from last year. That said, AI is influencing recruiting, with some firms scaling back hiring due to AI and some firms adding workers proficient in its use. Looking ahead, however, layoffs and reductions in hiring plans due to AI use are expected to increase, especially for workers with a college degree.
More Businesses Are Using AI
Our August business surveys asked firms in the New York–Northern New Jersey region whether they used AI as part of their business process in the past six months and whether they planned to use AI over the next six months. This included searching for information, marketing, business analytics, data management, and customer service, among other uses. Firms using AI exclusively as an information search tool but nothing else were not counted as AI users. As shown in the chart below, 40 percent of service firms reported using AI this year, up from 25 percent this time last year, and 44 percent expect to use AI over the next six months. Among manufacturers, there was a similarly sized jump in use, from 16 percent last year to 26 percent this year, with roughly a third expecting to use AI over the next six months. These shares are toward the high end of the range of existing studies of AI uptake in the workplace.
AI Use Has Increased, and is Expected to Continue to Increase
Percent
Note: Firms using AI exclusively as an information search tool but nothing else were not counted as AI users.
As might be expected, AI use varied widely among businesses in different industries. For example, over half of firms in the information, finance, and professional & business services sectors reported using AI as part of their business processes, while no firms in the agriculture industry indicated using AI. Around 40 to 45 percent of firms in the wholesale and leisure & hospitality sectors use it, as do roughly a third of firms in the education & health, personal services, and retail sectors.
Of note, more firms are using paid AI tools compared to last year, a testament to AI’s penetration into the workplace: about half of service firms that use AI report using paid tools, up 16 percentage points from this time last year, as did 46 percent of manufacturing firms, up a whopping 39 percentage points from last year when only 7 percent were using paid services.
Businesses are using AI in a number of different ways, as shown in the chart below, though a few purposes stand out. Over half of service firms and more than 40 percent of manufacturers that use AI use it to search for information, while 50 to 60 percent of both types of firms use AI for marketing and advertising. Business analysis was also a popular use. Around a third of service firms use AI for data management, and around a quarter of them use AI for customer service and to develop new workflows. A smaller but significant share of manufacturers also used AI to develop new workflows, as well as for customer service, quality control, and accounting.
How Firms are Using AI
Percent
How Are Businesses Adjusting Their Workforces?
Our surveys sought to assess the extent to which firms were adjusting their workforces in response to AI in four ways. First, firms may lay off existing employees as AI replaces their roles entirely. Second, firms could reduce planned hiring as AI takes over certain tasks or increases productivity, leading to less need for new workers. Third, firms may secure new employees who can effectively use AI. Fourth, firms could decide to retrain their current workforce to adapt to and utilize AI in their jobs. We show the shares of firms that made each of these adjustments in the chart below and compare them to what firms told us last year at this time, as well as their expectations for the next six months.
Ways Service Firms Are Adjusting Their Workforces
Share of AI users (percent)
Note: Firms were not asked whether they hired fewer workers in 2024.
Ways Manufacturers Are Adjusting Their Workforces
Share of AI users (percent)
Note: Firms were not asked whether they hired fewer workers in 2024.
Though layoffs due to AI were uncommon, service firms expected more layoffs in the coming months. Only 1 percent of service firms reported letting go of workers in response to AI over the past six months, a decrease from 10 percent who said they had laid off workers due to AI in last year’s survey. However, 13 percent of service firms anticipate layoffs over the next six months. This projection is perhaps tempered by the fact that in last year’s survey about the same share expected to lay off workers, when in fact very few did so this year. No manufacturers reported layoffs this year or last year, and none expected layoffs over the next six months.
However, about 12 percent of service firms using AI said they had hired fewer workers due to its use in the past six months and nearly a quarter of those that plan to use AI in the months ahead said they expected to hire fewer workers as a consequence (note: this question was not asked in 2024). This is consistent with findings from a Dallas Fed regional survey, which found that 10 percent of business executives reported that AI decreased their need for workers. Interestingly, the reduction in hiring due to AI was concentrated among jobs that require a college degree. Such curbs on hiring may be contributing in some small part to reports of recent college grads struggling to find jobs. By contrast, no AI-using manufacturers had reduced hiring due to AI, though close to 10 percent expected to reduce hiring over the next six months.
Offsetting this reduction in hiring, 11 percent of service firms and 7 percent of manufacturers said they had hired more workers due to AI, and 10 to 15 percent of both types of firms expected to hire new workers due to AI over the next six months. Businesses report that such hiring is also concentrated among those with a college degree, consistent with recent research findings from the Atlanta Fed. Although not common, some firms who laid off or scaled back hiring also hired new workers, suggesting the effects of AI on individual firms’ workforces are complex.
Meanwhile, like last year, a large share of businesses report retraining existing workers exposed to AI. Among businesses that use AI, just over a third of service firms and 14 percent of manufacturing firms report retraining workers in response to AI. Firms report retraining workers across the educational spectrum, though somewhat more of those with college degrees. Nearly half of both types of firms anticipate retraining their workers to use AI over the next six months, again across the educational spectrum, similar to expectations reported last year at this time.
Modest Economywide Impacts … So Far
While our surveys indicate that firms using AI have made adjustments to their workforces due to AI, it is important to keep in mind that they apply only to the 25 to 40 percent of firms that are using it. Thus, any implied economywide labor market impacts are likely to be relatively modest, and at least so far, do not point to significant reductions in employment, particularly since employment effects can be both positive and negative. Indeed, our surveys suggest that for those who have a job, they are more likely to be retrained than replaced by AI. Moreover, AI has created job opportunities for those skilled in its use, with some firms hiring new employees to work with this emerging technology. However, for some job seekers, AI has likely made it a bit harder to find a job as some firms have reduced hiring due to its use. Looking ahead, firms anticipate more significant layoffs and scaled back hiring as they continue to integrate AI into their operations.
Jaison R. Abel is head of Microeconomics in the Federal Reserve Bank of New York’s Research and Statistics Group.
Richard Deitz is an economic policy advisor in the Federal Reserve Bank of New York’s Research and Statistics Group.
Natalia Emanuel is a research economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
Ben Hyman is a research economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
Nick Montalbano is a data analytics specialist in the Federal Reserve Bank of New York’s Research and Statistics Group.
How to cite this post:
Jaison R. Abel, Richard Deitz, Natalia Emanuel, Ben Hyman, and Nick Montalbano, “Are Businesses Scaling Back Hiring Due to AI?,” Federal Reserve Bank of New York Liberty Street Economics, September 4, 2025, https://libertystreeteconomics.newyorkfed.org/2025/09/are-businesses-scaling-back-hiring-due-to-ai/
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Labor Market for Recent College Graduates
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The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).
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