Rarely does a week go by without another headline warning that AI is coming for your job. Leaders from the head of the IMF to Palantir CEO Alex Karp have alerted to the coming “destruction” and much has been written about how AI could reshape knowledge work- from software development to consulting to bot-ification of customer support.  At Cowboy Ventures, we too have written about the opportunities for AI to disrupt labor heavy knowledge work, aka professional services. 

But we’re also fascinated by the opposite dynamic: Industries where companies cannot find enough workers. Across critical sectors of the US 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, like manufacturing, construction, healthcare services, and hospitality.

These markets are enormous, operationally complex, and increasingly constrained by labor availability. In many cases, companies are not asking how AI can replace workers, they are asking how technology can help them operate when they simply cannot hire enough skilled people.

This is the multi-trillion dollar Labor Shortage Economy. 

For the purposes of this post, I’ll focus primarily on several large and oft-overlooked sectors experiencing acute labor constraints. But similar dynamics exist in many specialized white-collar professions as well—from radiologists to highly specialized kernel engineers (see e.g. Cowboy portfolio company Standard Kernel)

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A Teardown on the Labor Shortage Economy 

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Manufacturing and Industrial

In recent years there has been renewed interest in rebuilding the U.S. industrial base. Supply chain shocks during COVID exposed the fragility of global manufacturing networks, while geopolitical tensions have intensified calls for domestic production of critical technologies.

But one of the biggest barriers to reshoring isn’t capital. We need more skilled labor.

Projections suggest 2.1 million manufacturing jobs will go unfilled by 2030, rising to nearly 4 million by 2033, representing trillions of dollars in lost economic output. In many industrial cases, retention also comes down to the dangerous, dirty, or physically grueling work itself, magnifying the impact of existing labor shortages.  

Even highly advanced sectors like semiconductors face significant workforce gaps. 60% of projected semiconductor jobs may go unfilled due to insufficient training pipelines, and fab’s like TSMC’s Arizona facility have already faced delays attributed to local skill shortages.

The ambition to rebuild American manufacturing is real, but without workforce leverage, it will be difficult to achieve.

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Construction and Skilled Trades 

Construction faces a similarly severe demographic challenge. By 2031, over 40% of the construction workforce is expected to retire, leaving nearly every contractor struggling to hire. Today the U.S. already faces a shortage of roughly 500,000 construction workers, costing the economy billions annually.

The situation is even worse across e.g. skilled trades. More than 1 million skilled trade roles are currently unfilled, and the pipeline continues to shrink. For every tradesperson retiring, only 0.6 new workers are entering the field. Electricians illustrate the problem clearly. Nearly 30% of union electricians are nearing retirement, just as demand surges from EV charging infrastructure, data centers, solar installations, and electrification initiatives. Demand for electricians is expected to grow 25% over the next four years, while supply could decline by 14%.

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Healthcare and Social Assistance 

Healthcare is one of the largest labor markets in the United States, and one of the most strained.

The home health and direct care workforce already employs more than 5.4 million, yet turnover can exceed 80% annually. Demand is projected to grow dramatically as the U.S. population ages. By 2034, there could be more than 6 million openings for home health aides alone.

The shortages extend across the healthcare system. Nearly half of registered nurses are over age 50, and roughly one million are expected to leave the workforce by 2030. Similar gaps exist across physicians, mental health providers, and diagnostic specialists. Demand is rising rapidly. Supply is not.

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Leisure and Hospitality 

Few industries experience labor churn like hospitality. Turnover rates can exceed 150% annually in fast food, and even after wages rose significantly post-COVID, more than 65% of U.S. hotels still report staffing shortages.

The nature of the work: physically demanding, inflexible schedules, and often low wages—has historically made hospitality a “pass-through” industry. Now, gig platforms offer competing alternatives that provide greater flexibility and schedule control. And, 31% of workers are foreign-born immigrants, some of whom work on temporary or seasonal work visas that are being curtailed.

The result is an industry stuck on a perpetual hiring treadmill, with labor cited as the top operational challenge by the vast majority of operators. 

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Why the Labor Gap Is Growing

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Across these sectors, several structural forces are converging to create a Labor Shortage Economy. A few that come up most often when talking to employers are: 

Demographic Shifts: The United States is entering one of the largest workforce transitions in its history. 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 Millennials and Boomers. This is a demographic math problem that hiring alone cannot solve.

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Skills Gaps: Even when workers exist, the right skills often do not. The gap between the skills employers need and those available in the labor market has become a structural crisis McKinsey estimates 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 where technical, skilled, or semi-skilled roles go unfilled while workers in declining fields struggle to transition.

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Changing Expectations for Work: The structure of work itself is evolving. 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 “freelancing” by 2027. Although return to work and 9-9-6 cultures are in vogue in Silicon Valley, flexibility and schedule control increasingly outweigh traditional employment models for many workers in the broader labor pool. 

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4 Ways AI Will Address Labor Shortages 

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AI to augment humans: In contexts where human judgment must remain in the loop, AI can dramatically increase the leverage of each worker—enabling one person to do the work of several, surface the right information at the right moment, or manage the cognitive overhead 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). In the case of Cowboy portfolio company Basata.ai, their AI healthcare platform for specialty clinics allowed 1 medical records manager to do the work of 4, bringing patient outreach time for referrals down from 1 month to same day. 

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AI to drive process/operational efficiency: These tools make the work itself (or getting the job) better—transforming how firms attract, onboard, manage, and retain workers in industries losing the talent competition to the gig economy. Bringing greater visibility and flexibility to demand forecasting, scheduling, and workforce management and introducing modern tools for seamless application, interview, and communication flows, will be critical for more traditional industry employers to stay competitive. It’s also necessary for efficiency in markets where fully loaded labor costs can make up 40-60% of a company's P&L costs. At ReadyOn, their system of action for frontline labor has already managed to reduce hiring time by 75%, and reduced overall labor costs by multiple millions of dollars at enterprise customers by bringing predictive analytics and just-in-time flexibility to hundreds of thousands of front-line workers. 

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AI for Training & upskilling: On the job training and upskilling has gained new primacy in the age of AI. Historically, frontline labor employers struggled to provide upward mobility for high potential employees, contributing to churn and exacerbating shortages for managers, skilled workers, or certification holders like forklift operators, CNC machinists, or licensed alcohol servers. Now, as digitization and AI find their ways to legacy industries, more and more jobs require knowledge and understanding of software interfaces in lieu of paper and pen and new (even robotic) machines instead of traditional equipment. And, the way we train should also transform. Cowboy portfolio company GUILD offers AI combined with human-led and hands-on upskilling  that drive high learner engagement and frontline worker retention for in-demand roles in manufacturing, transportation, logistics and healthcare. 

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AI to fully automate (replace) roles: Finally, in some cases entire automation is possible- particularly for the most dangerous, physically demanding, or mundane and repetitive work. This includes robotics in physical industries and AI agents that can complete entire workflows digitally. AI and robotics can remove humans from environments where error is costly or consistency is paramount, and in many cases deliver a higher overall standard of output than human performance alone. In the home services sector, for example, a roofing company’s success hinges on their ability to maximize the utilization of their specialists. This requires armies of call operators to manage scheduling overhead. Revin.ai automates that work entirely over voice and text, removing the need for human intervention entirely, unlocking previously inaccessible top line growth. 

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AI for labor is a Big Opportunity

We believe startups helping industries navigate the Labor Shortage Economy—whether by augmenting workers, improving jobs, or automating bottlenecks entirely—represent some of the largest untapped market opportunities. We are actively investing across this thesis and looking for more great teams to back. If you’re building technology that helps industries operate in a labor-constrained world, we’d love to hear from you!

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