How AI and Market Pressures Affect White-Collar Jobs

When Starbucks revealed last month that it would be cutting over 1,000 corporate jobs, it underscored an unsettling reality for white-collar workers. In recent years, this group has faced a sharper rise in unemployment compared to other sectors, alongside slower wage growth.

This announcement further fueled an ongoing debate among economists: Are these job losses merely part of a temporary economic fluctuation, or do they signal a more permanent and concerning shift in the labor market?

After maintaining an unemployment rate below 4 percent for over two years, the overall jobless rate has now exceeded this threshold since May.

Experts argue that, by historical standards, the job market remains relatively strong. Much of the recent job instability appears to be linked to the economic repercussions of the pandemic. During the post-pandemic recovery, businesses aggressively expanded their workforce to meet surging demand, only to later reverse course when the Federal Reserve started increasing interest rates. Additionally, investor pressure has prompted many companies to streamline their operations, leading to further workforce reductions.

However, with the rapid evolution of artificial intelligence and former President Trump’s policy moves that targeted federal agencies—institutions that have traditionally supported a significant number of white-collar jobs—some experts speculate that the decline in knowledge-based work could be more than just a passing phase.

“We’re witnessing a fundamental transformation in white-collar employment,” said Carl Tannenbaum, chief economist at Northern Trust. “I tell people: A wave is coming.”

Perhaps no industry exemplifies these shifts as clearly as the video game sector. During the height of the pandemic, demand for digital entertainment skyrocketed, prompting companies to hire aggressively. However, as economic conditions changed, the industry entered a period of mass layoffs. Over the past two years, thousands of workers in the gaming industry have lost their jobs.

The severity of the cuts was evident at the 2024 Game Developers Choice Awards, where the event’s host openly criticized the industry’s record job losses during her opening remarks. That same year, a unionization trend that initially began with lower-paid quality assurance testers extended to higher-level roles, including producers, designers, and engineers at major gaming companies like those behind Fallout and World of Warcraft.

At Bethesda Game Studios, a subsidiary of Microsoft and the developer of Fallout, employees sought union representation after witnessing rounds of layoffs in 2023 and 2024. Many believed that unionization would provide them with greater bargaining power in an increasingly unstable job market.

“This was the first time Bethesda had seen layoffs in a very, very long time,” said Taylor Welling, a producer at the studio with a master’s degree in interactive entertainment. “That really unsettled a lot of people.” Microsoft declined to comment on the matter.

The financial sector has also felt the impact, with unemployment in finance and related fields rising by approximately 25 percent between 2022 and 2024. Higher interest rates slowed mortgage demand, prompting financial institutions to seek greater efficiency. Wells Fargo, for instance, has reduced its workforce for 16 consecutive quarters, with its home lending division experiencing a nearly 50 percent reduction since 2023.

Last fall, Wells Fargo cut about one-quarter of its 45-person conduct management intake team, responsible for reviewing internal misconduct reports. Former employees, such as lawyer Heather Rolfes, believe the layoffs were motivated by cost-cutting efforts and a desire to dismantle unionization efforts within the company.

“They managed to solve two problems at once,” Rolfes remarked. Some of her ex-colleagues now live in constant anxiety, anticipating layoffs every Tuesday after payday—the day the company typically delivers such news.

A Wells Fargo spokesperson denied any connection between the layoffs and unionization, stating that the company regularly adjusts staffing based on market conditions. The spokesperson also noted that even management positions were affected by the cuts.

Atif Rafiq, an author and corporate strategist with experience at McDonald’s and Amazon, pointed out that many companies are adopting a model similar to Amazon’s, integrating cross-functional teams to break down barriers between different job roles, such as coding and marketing. While this approach improves efficiency, it also leads to redundancies and subsequent layoffs.

Starbucks, in its recent layoff announcement, emphasized its goal of eliminating redundant layers within the organization to create smaller, more agile teams. Nissan cited a similar rationale for its recent managerial cuts.

Data from the Federal Reserve Bank of New York reveals that since September 2022, the unemployment rate among college graduates has surged by 30 percent, reaching 2.6 percent from a previous 2 percent. In contrast, overall unemployment has risen by approximately 18 percent, climbing from 3.4 percent to 4 percent. An analysis by Julia Pollak, chief economist at ZipRecruiter, indicates that unemployment is highest among those with a bachelor’s degree or some college education but no degree, while joblessness has remained stable or even declined among those at the extremes of the education spectrum—such as individuals with advanced degrees or those without a high school diploma.

According to ADP Research, hiring rates for positions requiring a college degree have slowed more than those for other job categories. Some economists believe these changes may be temporary and not a cause for significant alarm. Harvard labor economist Lawrence Katz noted that the increase in unemployment among college-educated workers is only marginally higher than the overall trend. By historical standards, both rates remain relatively low.

Professor Katz suggested that slower wage growth among upper-middle-class workers may be a result of the flexibility they have gained through remote work. Data from the Economic Policy Institute indicate that since 2019, wages for workers in the 70th and 80th income percentiles have grown more slowly than those of any other group.

However, some economists argue that the long-term value of a college degree has been shifting for years. The wage gap between college-educated workers and those without degrees expanded consistently from 1980 until the past 15 years when it plateaued, though it remains substantial.

One reason for this flattening could be the increasing number of college graduates in the labor market, giving employers a larger talent pool to choose from. Others suggest that technological advancements have reduced the demand for traditional white-collar roles, such as bookkeeping, which historically offered high wages to degree holders.

The rise of artificial intelligence could further impact knowledge-based jobs. A recent study found that software developers using AI coding assistants saw a more than 25 percent boost in productivity, with the largest gains occurring among less-experienced programmers. This could potentially shrink the wage premium for seasoned coders, as AI levels the playing field.

Mert Demirer, an economist at MIT and co-author of the study, speculated that the role of human coders may evolve, with workers shifting toward project management roles overseeing AI assistants. This transition could eventually lead to higher wages, but in the short term, many tech companies appear to view AI primarily as a means to reduce labor costs. Since 2022, the unemployment rate in tech and related industries has climbed from 2.9 percent to 4.4 percent.

Further complicating matters are policy changes under former President Trump that have led to job losses and hiring freezes within federal agencies, universities, and nonprofits reliant on government funding. Johns Hopkins University, heavily dependent on federal research grants, recently announced 2,000 job cuts worldwide in response to these funding reductions.

Professor Katz warned that a significant portion of college-educated workers rely directly or indirectly on government funding. “If we see a major contraction in government investment in science, research, and education, the impact on the labor market could be profound,” he said.

“The current unemployment rate for college graduates doesn’t seem alarming,” Katz added, “but that could change in the next six months.”