Artificial intelligence is reshaping the labor market by facilitating increased self-employment, according to recent research by Liya Palagashvili of the Mercatus Center at George Mason University. Her study indicates that, rather than causing widespread job losses, AI may be enabling more individuals to start their own businesses by lowering the costs associated with entrepreneurship.

Palagashvili’s analysis focuses on industries with high AI adoption—including professional services, information, education, finance, and insurance—and compares them with sectors such as construction and wholesale trade, where AI use remains limited. Between the first quarter of 2024 and the first quarter of 2026, new business formations in AI-exposed industries rose by nearly 27 percent, whereas firms in the low-AI sectors saw little change. This growth in self-employment is particularly notable in occupations that are susceptible to AI automation, such as management analysts, lawyers, actuaries, and economists, which experienced a 20 percent increase in solo self-employment. In contrast, sectors with minimal AI exposure, including fitness training, landscaping, construction, and dining services, showed stable self-employment rates.

The findings suggest that AI may be reshaping traditional employment patterns by enabling workers to bypass corporations and offer services directly to clients. Economies of scale have historically encouraged the dominance of employers who aggregate labor and client relationships, but AI tools could reduce the costs and complexities of managing a business independently. This shift may be less feasible in fields that rely heavily on physical presence or assembly-line tasks but is more attainable for professionals engaged in one-on-one client interactions.

Despite this trend, large firms are unlikely to disappear. However, AI might prompt companies to reduce their reliance on contractors rather than full-time employees, as integrating AI internally could substitute for outsourced services and streamline operations. Businesses could achieve cost savings by scaling back external contracts rather than undertaking potentially disruptive layoffs.

The transition toward greater self-employment raises policy challenges, particularly regarding access to benefits such as health care and retirement programs, which have traditionally been tied to employer-employee relationships. Some states, starting with Utah in 2023, have enacted portable benefits laws that allow workers to retain benefits independent of a single employer, and similar measures have been proposed at the federal level.

Experts caution that while AI holds promise for transforming work arrangements, high costs and entrenched practices may slow widespread changes. However, historical technological shifts have altered work patterns without causing mass unemployment, underscoring the importance of adapting labor policies. As Palagashvili notes, the initial economic effects of AI may not be job losses but a rise in independent work, signaling a need for policymakers to support this evolving workforce dynamic.