The Impact of AI on the Future of Work

The rapid advancement of artificial intelligence (AI) is reshaping the landscape of work as we know it. Despite the transformative effects of AI, the latest data on jobs may not fully capture the changes taking place in the labor market. According to Svenja Gudell, chief economist of global employment platform Indeed, the prevailing sentiment can be summarized in one word: “uncertainty.”

In a recent episode of McKinsey Talks Talent, Svenja Gudell, along with McKinsey talent leaders Brooke Weddle and Bryan Hancock, discussed the current collision of labor market trends, including generative AI, agentic AI, an aging workforce, shifting priorities, and more.

Uncertainty in today’s labor market

Lucia Rahilly: Svenja, welcome to McKinsey Talks Talent.

Svenja Gudell: Thanks so much for having me. It’s a pleasure to be here.

Lucia Rahilly: Let’s start with a quick overview of what your role as chief economist of Indeed’s Hiring Lab entails.

Svenja Gudell: As chief economist for Indeed, I run the Indeed Hiring Lab, which is Indeed’s economics and research arm. Our mission is to be at the forefront of everything to do with the labor market, informing stakeholders and audiences about emerging trends.

Lucia Rahilly: There is a lot of uncertainty in the macroeconomic environment right now. What are the most surprising trends you see emerging in the data for 2025, and how do they compare with what you’ve seen in previous years?

Svenja Gudell: The level of uncertainty we’re dealing with in today’s economic market is incredibly high. A convergence of factors, including politics, the aftermath of the pandemic, demographic shifts, and the impact of AI, is contributing to this uncertainty.

From churn to return

Bryan Hancock: What have you seen about people who are marginally attached to the labor market—the ones who are first to exit, first to come back in when the job market either gets weaker or stronger?

Svenja Gudell: Initially, we saw a significant impact on the labor market due to the COVID-19 shock, with many people exiting. However, as things started to recover, we witnessed a resurgence in labor force participation, including individuals who had previously retired reentering the market. The current phase presents new challenges as return-to-work mandates and reduced flexibility are affecting the labor market dynamics.

AI and jobs—from generative to agentic

Lucia Rahilly: Svenja, let’s get a sense of the holistic picture of the labor market that your data helps inform, starting with AI. Talk about how you see AI changing the game for job seekers.

Svenja Gudell: Our research has focused on understanding the impact of generative AI on the labor market. We have observed that while AI is reshaping job roles and skills requirements, it is also augmenting existing jobs rather than completely replacing them. The rise of generative AI has particularly impacted knowledge worker jobs, leading to a reconfiguration of skills and job functions.

Bryan Hancock: How is generative AI changing the work of economists?

Svenja Gudell: Economists are also adapting to the era of AI, utilizing data and analytics to gain deeper insights into market trends. While generative AI is enhancing certain tasks such as coding, economists continue to play a crucial role in forecasting, trend analysis, and synthesizing complex information.

Brooke Weddle: What about agentic AI? Are you seeing any early signs of AI displacement, particularly among entry-level candidates?

Svenja Gudell: The impact of agentic AI is noticeable in the job market, with fewer entry-level positions and a shift in demand for certain skill sets. Entry-level candidates are facing challenges as automation and AI technologies reshape job requirements. Employers are reevaluating their hiring strategies to align with the evolving demands of the labor market.

Evolving priorities

Brooke Weddle: Svenja, how have you seen the role of the résumé change over time?

Svenja Gudell: The emphasis on skills has become paramount in today’s job market. Job seekers are encouraged to highlight their skill sets rather than traditional metrics like years of experience or educational qualifications. The résumé remains a critical tool for job seekers, but its format and content are evolving to reflect the demand for specific skills.

Lucia Rahilly: Is talent still prioritizing hybrid and other kinds of flexibility in the return-to-office scenario?

Svenja Gudell: While compensation remains a top priority for job seekers, particularly for women, flexibility in work arrangements, such as remote or hybrid options, continues to be a significant factor in job decisions. Despite a decline in remote job offerings, the demand for flexible work arrangements remains high among job seekers.

What leaders are missing—and why it matters

Brooke Weddle: Are there trends that business leaders should focus on but are currently overlooked?

Svenja Gudell: Long-term trends and the transformative impact of AI are often underestimated in the current job market discourse. As organizations navigate uncertainty, it is essential to adopt a strategic approach that considers both short-term needs and long-term implications of technological advancements.

The labor market of tomorrow

Lucia Rahilly: Looking ahead, what trends and disruptions do you foresee in the labor market beyond 2025?

Svenja Gudell: The aging workforce and the integration of AI into various job functions will continue to shape the labor market of the future. Employers will need to adapt to changing skill requirements and workforce demographics to remain competitive. Workforce planning and upskilling initiatives will be crucial in preparing for the evolving job market.

FAQ

Q: How is AI impacting entry-level job opportunities?

A: AI is leading to a reduction in entry-level positions and a shift in demand for specific skill sets among job seekers.

Q: What role does flexibility play in the current labor market?

A: Flexibility, including remote and hybrid work arrangements, remains a key priority for talent, especially in the post-pandemic return-to-office scenario.

Conclusion

The intersection of AI and the evolving labor market presents both opportunities and challenges for organizations and job seekers alike. As AI continues to reshape job roles and skill requirements, it is imperative for businesses to adapt their hiring strategies and workforce planning initiatives to align with the changing demands of the future.

By staying ahead of emerging trends, leveraging data-driven insights, and fostering a culture of continuous learning and adaptation, organizations can navigate the uncertainties of the labor market and thrive in an AI-driven economy.