Entry-Level Hiring Slump: Remote Work or AI to Blame?

College graduates in their early-to-mid-20s are experiencing an unusual labor market reversal. For the first time since late 2018, this cohort frequently faces higher unemployment rates than the overall workforce, according to New York Federal Reserve data.

The shift has sparked debate among labor economists about root causes. Two competing explanations have emerged: the rise of remote work and the adoption of generative AI tools. The answer matters for both employers designing hiring strategies and graduates planning their careers.

The remote work hypothesis

Researchers Peter John Lambert of the London School of Economics and Yannick Schindler of the UK's Ellison Institute of Technology analyzed hiring patterns across multiple countries before and after both the pandemic and ChatGPT's arrival. They found entry-level hiring fell as much as 29% in recent years, while senior-level hiring rose more than 5%.

Lambert argues remote work explains the decline better than AI because the downturn began before generative AI tools became widely available. "It's only when you compare these things jointly that you start to see a stronger relationship between work-from-home than generative AI," Lambert said.

New York Fed researchers examining an undisclosed Fortune 500 company reached similar conclusions. When colleagues work remotely, "feedback tapers off dramatically," they found. The loss proves especially pronounced for younger workers who miss constructive feedback critical to their development.

Nicholas Bloom, an economics professor at Stanford University, takes a more cautious view. He said remote work, AI, pandemic-era learning losses, and broader hiring slowdowns in tech-heavy sectors all represent plausible explanations, but current data cannot definitively determine which factors drive the trend or their relative impact.

The AI adoption argument

Mark Ma, an associate professor at the University of Pittsburgh School of Business, found that companies mentioning AI in job titles or descriptions reduced overall hiring, with the steepest declines in entry-level roles. Ma interprets this as evidence that firms investing in AI need fewer junior employees because "the junior-level work could be more easily replaced by AI."

Ma also challenges the remote work explanation on timing grounds. Remote work rates were higher several years ago than today, yet "the problem is getting worse now," he said. His research found that firms with more remote job postings actually increased hiring for junior positions overall, possibly because those companies were growing faster.

The return-to-office divide

UK fintech company Revolut recently announced that starting in 2027, interns and recent graduates in its programs must work in the office at least three days weekly, while other employees retain remote work options. Queenie Li, the company's head of talent programs, said the policy reflects the value of in-person learning: "You don't just learn from your manager telling you what to do. You actually observe how other people conduct their work."

The approach may align with worker preferences. A 2025 Gallup survey found only about one-quarter of Gen Z workers who could work remotely wanted to do so full time, compared with roughly one-third of older generations.

Brad Hershbein, senior economist at the W.E. Upjohn Institute for Employment Research, said hybrid arrangements can serve as an effective middle ground, ensuring early-career workers receive mentorship while maintaining flexibility. Remote workers early in their careers often miss informal learning opportunities. "In some cases, they end up being unhappy because they're just not learning some things," Hershbein said.

Why it matters

The entry-level hiring slowdown represents more than a temporary market adjustment. If remote work limits companies' ability to train new workers effectively, firms may need to redesign onboarding and mentorship programs rather than simply mandate office returns. If AI is displacing junior roles, educational institutions and workers must adapt to a labor market where traditional entry points are shrinking. Understanding the true drivers will shape workforce development strategies for years to come.

These findings were first reported by Business Insider.