The U.S. should be prepared for “serious short-term disruptions” to the job market because of artificial intelligence which, depending on how fast it is deployed, could begin displacing workers at scale and widening inequality in favor of investors, Fed Governor Michael Barr said on Thursday.
His comments, not predicting but suggesting preparation for social strains because of AI, follow midterm elections that swung partly on a backlash to the rapid AI buildout. They also precede a public Fed forum in San Francisco on Monday by a task force appointed by Federal Reserve Chairman Kevin Warsh to explore what the new technology may mean for the economy.
The implications remain uncertain, Barr said in remarks prepared for delivery at Yale University, with much riding on whether there is continued competition among AI companies to the degree that the powerful new technology becomes “a cheap and ubiquitous commodity, with gains widely shared,” much like the internet became over time.
In that case, “AI could democratize access to skills and information needed for small businesses to thrive,” he said.
The alternative is increasing market concentration among those who own or have invested in a handful of winning companies, with gains concentrated and increasingly flowing towards those owners of labor-displacing capital and continuing a downward slide in labor’s share of national income.
The labor share, a rough proxy for how much of the country’s output translates into wages for workers versus profits or equity income for business owners and investors, hit a record low 52.8% in the second quarter of 2026 after holding roughly steady between 60% and 65% from World War Two until early this century.
“Some researchers believe that AI has characteristics that have, in past example of high-tech advances, reinforced concentration of market power,” Barr said.
Likewise while there has been “relatively little displacement” of workers so far, and even evidence of AI boosting demand and adding jobs, Barr said the issue remains unsettled, hinging on whether small businesses in particular can maintain access to the technology to expand.
“No one knows the degree to which the benefits will be shared,” Barr said. “We are already seeing signs that AI may be a labor substitute in some sectors, especially for younger, less-experienced workers … If labor market changes happen quickly it will be hard for workers to adjust, and dislocations might be large … The concentration of market power may help drive a widening of inequality that would strain the American Dream.”
Warsh has often mentioned the possibility of AI ushering in an era of rising productivity that could lower inflation.
But the timing of those gains is uncertain, and Barr said he felt that the main impact of the new technology’s deployment has so far been to raise prices as AI firms pump trillions of dollars into data centers and the massive computing resources they require.
The investment has raised U.S. gross domestic product, Barr said, but “the second big effect is on prices… There’s a lot of input pressure and that input pressure… is spilling over into other areas,” driving prices higher for consumer goods like cellphones and gaming consoles, and pushing up wages in the construction industry.
The role of AI investment in sustaining inflation above the Fed’s target has been accepted by a number of Barr’s colleagues and firmed support for further interest rate increases.
(Reporting by Howard Schneider; Editing by Chizu Nomiyama, Daniel Wallis and Nia Williams)
