Michael S. Barr, a member of the Board of Governors of the Federal Reserve System and a voting member of the Federal Open Market Committee (FOMC) in 2026 because of his permanent Board seat, warned on Thursday that the US should prepare for the risk of serious short-term disruptions in the job market from AI.

That warning lands against a weak backdrop for workers: labor’s share of national income declined to a record low of 52.8% in the second quarter of 2026. Barr flagged signs that AI substitutes for labor in some sectors, and he cautioned that if the change happens fast, dislocations might be large.

He saw little displacement of workers so far, with competition among AI firms giving broad access to the technology. Barr then turned to who captures the gains. AI could be a form of capital-biased innovation, he said, where the returns from technological progress flow primarily to capital rather than labor.

If a small number of AI firms dominate the market and capture most investment returns, the wealth of their managers and owners could increase substantially. The outcome, he stressed, depends in part on whether AI leads to market concentration, a force for widening inequality, or to more competition and more widely distributed gains. His message is not to wait. Society should begin addressing the potential challenges of AI adoption while the technology remains in its relatively early stages.

Key Quotes:

Labor Market

  • There are signs AI is a substitute for labor in some sectors, and if change happens fast, ‘dislocations might be large’.

  • Little displacement of workers so far, with competition among AI firms allowing broad access to the technology.

  • The labor share of national income declined to a record low of 52.8% in the second quarter of 2026.

  • AI’s ability to perform complex, nonroutine tasks raises the question of whether its effects on the labor market could be stronger than those of previous technologies.

AI & Productivity

  • AI could represent a form of capital-biased innovation in which the returns from technological progress flow primarily to capital rather than labor.

  • The benefits of the AI technological revolution could be more narrowly shared than those of previous technological advances.

Market Concentration & Inequality

  • Outcome depends in part on whether AI leads to market concentration, a force for widening inequality, or more competition and more widely distributed gains.

  • If a small number of AI firms dominate the market and capture most investment returns, the wealth of their managers and owners could increase substantially.

Preparing for AI Disruption

  • US should be prepared for the risk of ‘serious short-term disruptions’ in the job market due to AI.

  • Society should begin addressing the potential challenges of AI adoption while the technology remains in its relatively early stages.