- Youth unemployment in the UK has hit 16%, its highest level in a decade, and for the first time since records began, the rate has overtaken the European average1.
- High-profile layoffs have fuelled fears that AI is the culprit, but the evidence is thinner than the headlines suggest.
- Weak growth, tight monetary policy and a surge in the minimum wage costs are doing most of the damage, particularly to younger workers.
In the UK, close to 600,000 16-24-year-olds are now out of work. It is the highest rate in a decade and marks the first time the UK has sat above the European average since records began2.
Source: Bloomberg News
The overriding concern today is whether the blame for this lies with AI. AI is good at the menial work that junior employees are usually given. A survey of over 850 business leaders found that 43% expect to reduce junior roles in the coming year because of AI.3 But it is not just the young being affected. The most dramatic example came from Jack Dorsey, whose payments firm, Block, last month cut half its workforce4. Dorsey’s view is that a smaller team using AI tools can simply do more, and that most other companies will come to the same conclusion within a year. Amazon, Meta and Salesforce have also all made big cuts recently and pointed to AI in the process.5
However, there is growing scepticism that AI is being used as a convenient cover for decisions driven by other factors, a phenomenon dubbed “AI-washing”. OECD data suggests that actual AI adoption in G7 firms remains limited, ranging from just 1.9% in Japan to 6.1% in the United States6. Put simply, the pace of AI adoption does not align with the scale of the damage being reported in the labour market.
In the UK at least, there are much more obvious culprits. Growth was just 0.1% at the last quarterly print7, held back by high interest rates and high taxes. For young workers in particular, the minimum wage has wrought considerable damage. Bloomberg found that the surge in youth unemployment directly correlated to increases to NICs and higher minimum wages coming into force8. The Institute for Fiscal Studies calculated that the cost of hiring an 18-to-20-year-old on the minimum wage rose 16.3% in a single year, the biggest increase since the minimum wage was introduced in 19999. Per the chart below, hospitality and retail, which together employ more than half of all young workers10, were hit hardest. The result is that young, inexperienced workers have been priced off the first rung of the career ladder, not by computers, but by myopic fiscal policy.
As for the tech firms making the headlines, their layoffs make more sense when you look at the numbers. Meta, for example, is planning to spend $600 billion building AI data centres and is guiding capital expenditure of up to $135 billion this year, an 88% increase on last year11. Funding commitments on that scale requires costs to be cut somewhere. Some analysts have suggested openly that AI provides convenient cover for cost reductions the tech giants would likely have made in any case.
Bowmore portfolios
So, is AI to blame for rising unemployment? Partly…but weak growth, tight global monetary policy and minimum wage increases have done more damage to the jobs market than any algorithm has. Further, AI provides a convenient narrative for large firms looking to cut costs while funding mounting data centre bills.
In our portfolios, we hold a deliberately lower weight in the large US technology names than is typical amongst our peers or in global indices. That has served us well over the past 18 months, with US large caps underperforming the markets where we retain a larger relative allocation; the UK, Japan, Asia and Emerging Markets; each of which we believe offers compelling opportunities at more attractive valuations. We do, however, retain meaningful exposure through holdings such as L&G Global Technology and the HSBC S&P 500 ETF.
Investors who have gone heavily underweight tech on the basis that AI is overhyped could be badly caught out. So could those who have piled in on the assumption that the bull case is assured. Staying diversified, keeping a balanced allocation, and resisting the urge to make a large directional bet in either direction is, in our view, the most sensible way to navigate an unclear picture.
Source: AlphaTerminal, data as at 19/03/2026
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Sources:
1. Commons Library
2. Commons Library
3. British Standards Institution
4. Bloomberg News
5. Fortune
6. OECD
7. Office for National Statistics
8. Bloomberg News
9. Institute for Fiscal Studies
10. Institute for Fiscal Studies
11. Motley Fool