U.S. Youth Unemployment Hits a Turning Point — and Jerome Powell, Top Economists, Believe It’s Not an AI Takeover

The sharp climb in joblessness among Americans under 25 has emerged as one of 2025’s defining economic flashpoints, Fortune reports, citing experts’ analyses.

For recent college graduates, the struggle to secure work has felt both isolating and disheartening. That anxiety gained unusual validation in recent weeks as central bankers and top economists began to acknowledge the reality: young workers face a uniquely American challenge.

Federal Reserve Chair Jerome Powell put it bluntly during his latest press conference following the Federal Open Market Committee.

“Kids coming out of college and younger people, minorities, are having a hard time finding jobs,” he said. He described today’s labor climate as a “low firing, low hiring environment,” where the overall “job finding rate is very, very low.”

In Powell’s telling, the market isn’t hemorrhaging jobs — it’s freezing young people out altogether.

AI Is Not the Main Villain

The conversation arrives amid public fascination with artificial intelligence. Deutsche Bank had already dubbed this past season “the summer AI turned ugly,” as studies warned of automation displacing entry-level roles. Yet Powell was skeptical. While acknowledging AI “may be part of the story,” he stressed it is “not the main thing driving” youth unemployment. He admitted there is “great uncertainty” around AI’s true impact but suggested that macroeconomic forces — slower growth, weak hiring, and restrictive immigration policies — are doing most of the damage.

Goldman Sachs and UBS economists soon echoed Powell. Goldman’s Pierfrancesco Mei argued that the real issue lies in the decline in job turnover.

“Finding a job takes longer in a low-turnover labor market,” he wrote, noting that “job reallocation,” the pace at which new jobs are created and old ones destroyed, has been declining since the late 1990s. Almost all job shifts now happen as “churn” between existing jobs. With churn well below pre-pandemic levels across states and industries, young workers bear the brunt. In 2019, an unemployed youth in a low-churn state needed 10 weeks to find work; now it takes 12 weeks on average.

UBS chief economist Paul Donovan offered a global comparison that makes the U.S. picture stand out even more starkly. In a note titled “The kids are alright?” he pointed out that European and Asian economies are reporting record lows in youth unemployment: young Euro area workers are thriving, the U.K. rate has been steadily falling, and participation by young Japanese workers is near all-time highs.

“It seems highly implausible that AI uniquely hurts the employment prospects of younger U.S. workers,” Donovan concluded. Instead, he said, the trend is “more convincingly” explained by a hiring freeze that blocks new entrants.

Data Underscore the Slide

The Bureau of Labor Statistics’ latest release makes the stakes clear. The youth unemployment rate hit 10.8% in July 2025, nearly a full percentage point higher than a year earlier. Between April and July, the number of unemployed young people swelled by about 690,000. The problem is broad-based, cutting across industries and states.

Why College Grads Are Hit the Hardest

History shows why new graduates may suffer most. Donovan noted that less-educated workers often escape the worst of such freezes because they typically enter the workforce earlier. High school dropouts, for example, can secure full-time work before downturns set in. With U.S. college enrollment in long-term decline, many young people are now turning to trades, where some earn six figures as entrepreneurs while peers with degrees struggle to get a foot in the door.

Stanford research adds a grim warning: graduates who entered the workforce during the Great Recession between 2007 and 2011 earned persistently less for 10–15 years compared to those who graduated during stronger job markets. Economists call these “scarring effects” — long-lasting damage to lifetime earnings, wealth accumulation, and even homeownership. With Powell already warning that minorities are finding it even harder to land jobs in 2025, the risk of widening inequality is real.

Powell left the door open on AI’s role. He mused that “companies or other institutions that have been hiring younger people right out of college are able to use AI more than they had in the past. That may be part of the story… Hard to say how big it is.” Yet the dominant narrative from both the Fed and Wall Street is that this is not primarily a story of robots replacing humans. It is a story of companies not hiring at all.

Policy and Market Implications

If the diagnosis is correct — that youth unemployment stems from a “no hire, no fire” freeze — the policy remedies differ sharply from those targeting automation. Economists suggest:

• Incentives for firms to expand entry-level hiring and apprenticeships.
• Targeted subsidies or tax breaks for employers who take on recent graduates.
• Expanded vocational training and credentialing to make job seekers adaptable.
• More accurate tracking of churn and hiring freezes across industries.

If unchecked, the current wave of unemployment could carve long-lasting scars into the economic futures of Gen Z workers, shaping wages, wealth, and opportunity for decades to come.