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Opinions April 24, 2026
AI and the Labor Shortage Economy
Benefits are a front-line attraction and retention tool—and plan sponsors overseeing retirement and health plans should expect changes across the board.
Reported by
Caroline Duffy
Rarely does a week go by without another headline warning that “AI is coming for your job.” Leaders ranging from the head of the IMF to Palantir CEO Alex Karp have trumpeted the coming job “destruction,” and much has been written about how artificial intelligence could reshape knowledge work.
Caroline Duffy
As an early-stage venture capitalist, I am equally fascinated by the opposite dynamic: Industries in which companies cannot find enough workers. Across critical sectors of the U.S. economy, the binding constraint is not job loss; it’s labor scarcity. Many of these sectors are foundational to the U.S. economy but historically under-digitized, such as manufacturing, construction, health care services and hospitality. But similar dynamics exist in specialized white-collar professions as well—from radiologists to kernel engineers.
The Forces at Work
Demographic Shifts: Roughly 12,000 Americans turn 65 every day as the Baby Boomer generation ages and retires. U.S. employers will need to hire an average of more than 240,000 workers per month for the next five years just to replace those exiting the workforce, but Gen Z is smaller than both the Millennial and Boomer cohorts. This is a demographic math problem that hiring alone cannot solve.
Skills Gaps: The gap between the skills employers need and those available in the labor market has become a structural crisis that consultant McKinsey & Co. estimated could cost $2.5 trillion in lost global economic output. Employers now expect nearly 40% of core workforce skills to change by 2030 yet training pipelines and education systems have struggled to keep pace. The result is a mismatch: Technical, skilled or semi-skilled roles go unfilled, while workers in declining fields struggle to transition.
Changing Expectations for Work: More than 70 million Americans (roughly 36% of the workforce) now participate in the gig economy, and projections suggest nearly half of all U.S. workers will be considered independent or “freelancers” by 2027. Flexibility and schedule control increasingly outweigh traditional employment models for many workers. In a 2024 survey, 63% of respondents ranked remote flexibility as the most important job feature, ahead of salary and benefits, and 95% said they wanted at least some form of remote work.
Turnover exacerbating the pain: In many sectors, labor shortages feel more acute (and expensive) due to rising turnover rates. The hospitality sector averages 74% annual turnover—five to six times the rate of other industries—while the fast food sector is approaching 150% annually. Health care faces a parallel crisis, with 62% of nurses and 48% of physicians reporting burnout symptoms. The costs add up: Replacing a single hospitality employee often costs an average of $2,000 to $6,000, while physician turnover due to burnout routinely costs health care systems $500,000 to $1 million per departure.
Where AI Can Help
No single lever will close a gap this large. But for employers in these sectors—and the benefits providers supporting them—technology, and AI in particular, is emerging as the most powerful tool to address it. It can shorten time-to-hire; provide upskilling that keeps workers current as roles evolve; drive retention through better schedules and more meaningful work; and reduce the burnout that compounds turnover. The employers and benefits providers that win the decade ahead will be those that adopt these tools thoughtfully and quickly.
Here is how AI can help:
Labor management: Tools that transform how firms attract, onboard and manage workers are among the most direct retention levers available to industries losing the talent competition to the gig economy. Turnover is often a schedule problem as much as a compensation problem. Bringing greater visibility and flexibility to demand forecasting, scheduling and workforce management, as well as introducing modernized application and interview flows, will be critical for employers to stay competitive. It is also necessary for efficiency in markets in which fully loaded labor costs can make up 40% to 60% of a company’s profit-and-loss-statement costs. As an example, AI company ReadyOn’s predictive scheduling for frontline labor has cut hiring time by 75% and saved enterprise customers millions.
Training and upskilling: On-the-job training and upskilling has gained new primacy due to AI. Historically, employers struggled to provide upward mobility for high-potential employees, contributing to churn and exacerbating shortages of managers, skilled workers or certification holders. Now, more jobs require knowledge and understanding of software interfaces in lieu of paper and pen, and new—even robotic—machines instead of traditional equipment. AI provides incredible leverage to change the way employers provide training. Guild is one representative of the path forward by offering AI combined with human-led and hands-on upskilling that drives high learner engagement and frontline worker retention for in-demand roles.
Force multiplier: AI can dramatically increase the leverage of each worker—by enabling one person to do the work of several, revealing the right information at the right moment, or managing the cognitive load that drives burnout and turnover. When every unfilled role has direct operational cost, these solutions allow employers to do more with less without sacrificing quality (or safety), and they often help reduce burnout or dissatisfaction by addressing the most tedious, unpleasant tasks and opening up a worker’s time for higher-order work.
What This Might Mean for Plan Sponsors
Benefits are no longer a back-office function. In a labor-constrained economy, they are a front-line attraction and retention tool—and plan sponsors overseeing retirement and health plans should expect several shifts:
Strategic education: Education and upskilling benefits are becoming strategic. With 40% of core skills shifting by 2030, tuition and upskilling benefits are moving from perk to critical workforce plan. Expect more sponsors to pair retirement and health benefits with structured learning benefits, especially in manufacturing, health care and logistics.
Updated connections: Deskless and hourly workforces need different tooling. The groups most affected by the labor shortage are often the least served by traditional benefits platforms, which were built for desk workers. Mobile-first enrollment, multi-language engagement and low-bandwidth access are becoming table stakes for engagement and for communicating necessary information.
Focus on the audience: Health care benefits are a retention lever for the front line. Benefits design that historically favored salaried workers is being re-examined for hourly and front-line populations, among whom turnover is most acute.
Plan for longer: Retirement plan design will need to accommodate longer careers. With Boomers working past traditional retirement ages and the trend of rehired retirees on the rise, sponsors should revisit provisions for phased retirement, in-service distributions and re-employment of former participants. Financial wellness programs—once a nice-to-have—are becoming a meaningful differentiator in recruiting older and hourly workers alike.
Caroline Duffy is a partner at Cowboy Ventures, an early stage venture capital firm based in Silicon Valley. She focuses on investments in B2B AI companies at the application and infrastructure layer.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.
