AI-driven layoffs are on the rise as the job market shrinks for recent grads

That’s what Shopify CEO Tobi Lütke told staff in a memo earlier this year. And he’s not alone.

Over at consulting giant McKinsey, thousands of AI agents have been deployed throughout the company, often picking up tasks previously handled by junior workers. At “AI-first” Duolingo, CEO Luis von Ahn is using “AI fluency” to determine who is hired and promoted at the company.

Across the rest of the Fortune 500, companies are well and truly leaning into their AI efficiency era, and, for many, that means more cuts and less hiring.

It’s perhaps no surprise that some recent data has pointed to AI becoming one of the top drivers of workforce reductions.

In the U.S., in the first seven months of 2025 alone, generative AI adoption was directly linked to over 10,000 job cuts, according to new data from outplacement firm Challenger, Gray & Christmas. The firm now ranks AI among the top five causes of workforce reductions this year.

Layoffs are on the rise

Layoffs are surging in the U.S., with companies announcing more than 806,000 job cuts so far in 2025, the highest figure for that period since 2020, according to Challenger, Gray, & Christmas. The tech sector has been hit the hardest, with over 89,000 layoffs in the industry alone. The firm found that more than 27,000 tech jobs since 2023 have been directly attributed to AI-driven redundancy, as companies streamline operations and restructure departments.

At the same time, companies are becoming more selective about who and where they hire. Entry-level roles are feeling the worst of this impact as the technology is increasingly good at automating junior-level work. Many firms are seeing easy cost-cutting opportunities at the entry level.

“A lot of entry-level work when you’re fresh out of college is knowledge-intensive jobs where you’re collecting data, transcribing data, and putting together basic visualizations, and learning the organization from the ground up,” Tristan L. Botelho, associate professor of organizational behavior at Yale School of Management, told Fortune. “AI can do that quite well and I’ve heard many managers say things like: ‘We can reduce our entry level head count.’ … The biggest disruption is likely among these low-level employees, particularly where work is predictable, tech-savvy, or more general.”

According to Handshake, a Gen Z-focused career platform, entry-level job postings, particularly in corporate roles, have dropped 15% year-over-year. At the same time, the number of employers referencing “AI” in job descriptions has surged by 400% over the past two years.

Gen Z graduates feel the squeeze

Nearly half of Gen Z job seekers in the U.S. say they believe artificial intelligence has made their degrees less valuable, according to a recent survey. Fresh graduates also face a tightening job market; the unemployment rate for recent college grads has climbed to an estimated 6% in the 12 months leading up to May, significantly higher than the national average of around 4%.

Young workers in the tech sector are feeling some of the worst of the industry’s slowdown. The unemployment rate for those aged 20 to 30 in the sector has jumped roughly 3% since the start of the year, according to Joseph Briggs, senior global economist at Goldman Sachs.

“This is a much larger increase than we’ve seen in the tech sector more broadly, or among other young workers,” Briggs said on the bank’s Exchanges podcast this week.

Cutting at the entry-level may make sense for a company’s bottom line in the short term; however, organizations that squeeze hiring at the entry level too much could see this strategy backfire in the long term.

“If a lot of firms are cutting, cutting, cutting at the entry level, there’s a fear that they might actually miss out on the talent that’s going to create their pipeline going forward that’s going to become the managers, executives, etc,” Botelho said.

The job market is hitting a wall

The long-standing fears around AI eating away at graduate jobs haven’t been helped by recent labor statistics.

The U.S. labor market showed signs of a serious slowdown in July, with weaker-than-expected job growth and downward revisions for previous months. Economists attributed the stall largely to business uncertainty driven by ongoing tariff changes under President Trump, which have made companies hesitant to invest or hire.

In March, the unemployment rate for college-educated Americans aged 22 to 27 hit 5.8%, the highest level in four years, according to data from the Federal Reserve Bank of New York. For some, the figure, which is well above the national average, served as a confirmation that the AI jobs apocalypse was already upon us.

However, the decline in entry-level job postings is happening alongside a slowing U.S. economy, making it difficult to separate the effects of AI from larger market forces. For example, Oxford Economics estimates that 85% of the recent rise in unemployment is due to new labor market entrants struggling to find jobs, not necessarily job eliminations across the board.

AI-driven or not, the U.S. economy is suffering from a generational squeeze as people just entering the workforce are facing higher barriers and fewer opportunities.