Headline unemployment rates for U.S. and European labor markets are near historic lows, but that three strong undercurrents are churning beneath that calm surface—immigration policy, energy-price shock from the Iran War, and artificial intelligence (AI)—according to a report from French insurance company Allianz.
In fact, demand for workers had already begun to soften before the shock of the Middle East crisis, Allianz says: vacancy rates were easing and hiring rates were cooling from uncertainty and the trade war.
Adding to the mix was the shift in immigration policy in the U.S., the UK and Germany: fading immigration inflows have quickly translated into lower employment numbers. In the U.S., immigration has gone from contributing over half of job creation in 2024 to near-absent in 2025 – weighing on potential growth and risking sectoral labor shortages, while offering a short-term offset against rising unemployment.
Over time, AI may have the biggest impact. Current indications show that the new technology is pointing toward creating a K-shaped pattern on labor markets, with youth and mid-level white-collar workers most at risk. Early evidence shows pressure on younger and less experienced white-collar workers in routine cognitive tasks, while gains accrue to higher-skilled, AI-complementary roles. Since late 2022, higher AI adoption has been associated with larger increases in youth unemployment. AI may therefore appear first not as job loss but as fewer entry points, weaker wage growth, and sharper polarization.
Over a longer horizon, the medium term impact of AI on labor markets will be “substantial,” uneven across countries, and unprecedented in the scale of workforce reorganization required. Over the next 1 to 3 years, AI is expected to affect 23.3% of jobs across major economies, primarily through reorganization (10.4% of jobs), ahead of augmentation (5.3%) and outright displacement (7.6%). The share of jobs affected ranges from 28.7% in the U.S. to lower numbers in the UK (17.7%), Germany (16.2%), France (14.7%), Spain (12.4%), and Italy (9.2%).
Allianz said its analysis does not account for potential AI-related job growth, which is expected to at least partially offset adverse employment effects. However, job displacement is likely to outpace job creation in the medium term, as firms adjust faster than workers, creating a temporary gap.
Ultimately, whether – and how quickly – AI leads to job losses, reorganization, or new job creation will depend less on technology than on policy choices. AI-proofing policy frameworks will be critical: labor-market policies, including re- and upskilling, active labor-market programs, and social protection, will shape worker transitions. Taxation (including the relative treatment of labor and AI capital), firm incentives, and competition policy will determine whether AI is deployed to augment or replace labor and how broadly productivity gains are shared.
