As artificial intelligence becomes more capable, analysts warn that it could eliminate up to half of all entry-level white-collar positions across sectors, driving unemployment as high as 10–20% within the next one to five years. A January World Economic Forum survey, in turn, revealed that 41% of companies expect to reduce headcount due to AI automation by 2030.
At first glance, this transformation promises companies cost savings. But there’s a catch: who will be left to buy the products and services these companies sell if millions of people lose their income? The short-term gains from automation could backfire, undermine incomes, and trigger broader economic instability. For now, however, investors remain euphoric about AI.
In response to growing fears of human obsolescence, policymakers are floating the idea of an “AI tax,” essentially penalizing companies that aggressively replace workers with algorithms. But this raises another issue: what will prevent such companies from simply moving their operations to countries with less stringent regulations? Universal basic income is also on the table.
As the world struggles to figure out how to contain the economic disruption of AI, another threat is brewing that could shake up the global labor market by more familiar means: a slowdown in economic growth. According to the latest OECD report, the global growth forecast has been revised down to 2.9% for both 2024 and 2025 (from 3.1% and 3%, respectively).
The main reason? Donald Trump’s trade wars.
The International Labor Organization warns that renewed trade wars could jeopardize up to 84 million jobs in more than 70 countries and slow global employment growth. Not even the United States will be immune. According to the Federal Reserve Bank of Philadelphia, unemployment could rise from 4.2% this quarter to 4.5% by early 2026, up from a projected 4.3%.
What does all this mean for the markets?
Starting with the US, the OECD expects inflation to accelerate even as unemployment rises, averaging 3.2% in 2025 and 3.9% year-on-year in the fourth quarter. This would put the Fed in a difficult position to choose between keeping interest rates high and lowering them. A wrong decision could affect market confidence in the dollar (pushing the EUR/USD pair down) and U.S. treasuries.
For the rest of the world, massive job losses are a bad omen. When people lose jobs on a large scale, incomes fall, and so does purchasing power with less money circulating, as well as demand for goods and services contracts. This reduces business revenues, lowers investment, and often leads to even more layoffs — a vicious cycle. Stock and bond markets will soon react.
This article was written by FL Contributors at www.forexlive.com.
