Economic momentum that didn’t last long

Monthly GDP numbers show that the UK economy performed well at the start of this year. There was a significant surge in economic activity in February (+0.5%), largely driven by the service sector. Alas, this data is already outdated, as it reflects economic conditions before the oil shock hit.

More timely survey data shows that all sectors are already experiencing a slowdown in March as the oil shock drives up inflation and reduces growth. The decline in the PMI (Purchasing Managers Index) numbers to just over 50 indicates that the economy is basically stagnant now.

While the unemployment rate has fallen back to 4.9%, the data is backward-looking and potentially even inaccurate due to the low response rate of the Labour Force Survey. Furthermore, we are seeing an increase in economic activity as some job seekers — especially younger workers — abandon their job search. More reliable payroll jobs numbers suggest that the labor market outlook is worsening.

March Job losses a sign of things to come?

The UK economy lost around 6,000 payroll jobs in February prior to the oil shock. Job losses in March came in at 11,000, potentially an early sign that companies are responding quickly to the worsening economic outlook.

The OECD is forecasting that inflation in the U.K. is rising by around 1.5 percentage points this year (from 2.5% to 4%). At the same time, economic growth is expected to slow to 0.7%, down from an earlier forecast of 1.2%.

Transportation and manufacturing are being squeezed by surging oil prices, while housing is hit by higher interest rates. Hospitality and retail suffer from the decline in consumer spending.

Employers will continue to shed jobs in the coming months as the effects of the oil price shock continue to ripple through the economy.

Vacancies continue to fall as demand slows

In line with falling economic momentum, employers’ hiring demand continues to fall. The total number of vacancies has fallen to 711,000, the lowest number since 2014 (outside of the pandemic).

Inflation outpacing wage growth

Sticky wage growth has been one of the biggest obstacles for the Bank of England (BoE). It has prevented monetary policy makers from providing additional support to the economy, even as the labor market has steadily weakened, because rising wages feed into higher inflation.

The good news is that nominal wage growth has now normalized. Private sector compensation is increasing at around 3.5%, which should ease the BoE’s concern about another wage-price spiral as the oil shock hits the economy. Labor market conditions are simply too weak for workers to demand higher compensation.

The flip side of this trend is that workers’ purchasing power will deteriorate again. After more than two years of real wage gains, workers will see their inflation-adjusted pay checks decline with inflation moving closer to 4%.

This will put additional pressure on the economy and affect various sectors — accommodation, hospitality, and retail — as consumer spending falls.

What does this mean for recruiters?

From a hiring perspective, the U.K. labor market is extraordinarily weak. Job seekers, especially younger workers, are facing the toughest market in more than a decade. Even before the latest oil shock, employers were already facing elevated global uncertainty, creating a reluctancy to hire.

Facing this new economic crisis, expect an even more cautious approach when it comes to workforce planning. UK employers have already shed jobs throughout February and March. We should expect more layoffs in the pipeline in the coming months as the oil price shock is creating higher inflation and slow economic growth.

Photo Credit: Shaah Shahidh

Oil and gas prices have surged since the conflict with Iran started. Oil price shocks often turn into recessions. The reason is simple. Carbon-based energy remains an extremely important input in today’s economy. As energy becomes more expensive, households and businesses must tighten their belts, and that means lower spending in the economy. So far, so obvious!

But the effects are more far-reaching than that. Central bankers typically need to hike interest rates to contain inflation, which means a slower economy, fewer jobs, and higher unemployment. Some sectors are more affected than others.

What may be surprising is that often monetary policy itself causes or at least contributes to the recession. In this piece, we will discuss the various channels through which energy prices slow growth and what that means for the hiring outlook across sectors.

Large oil price shocks are typically followed by economic downturns

A surge of more than 50% in oil prices relative to trend has almost always been followed by a recession. This was the case for the U.S. (and Europe) in the early and late 1970s (the two oil shocks), the early 1990s, and again in 2008 during the Global Financial Crisis.

The decline in discretionary income reduces consumer spending

Consumption makes up more than 65% of GDP in countries like the U.S. and the U.K. As energy prices rise, household disposable income falls because more money is spent on fuel and heating.

In the U.S., households in the middle of the income distribution (40th to 60th percentile) earn about $67,000 after taxes. However, approximately $52,000 are dedicated to spending on essential items, including basic needs like food, housing, transportation, health care, personal insurance, and pensions.

That means that only 22% of after-tax income — $15,000 — is left over as discretionary income, which can be allocated to food and drinks away from home, entertainment, vacations, personal care and other services.

The typical U.S. household spends about $2,000 a year on electricity and natural gas plus another $2,000 on car fuel. A 30% increase in oil prices could raise the cost of these essentials by around $1,000.

This represents a 7% hit to discretionary income for the median household, leading to an immediate decline in spending on non-essentials items. This usually means fewer leisure activities, eating out less often, cutting back on personal travel, etc.

Europeans tend to spend less on fuel but more on heating. While regulated energy markets can soften the impact at first, the hit to discretionary incomes in countries like the U.K. and Germany will likely be just as high if not higher.

On the business side, companies see their profit margins decline as energy prices soar. Transportation is affected the most since the cost of shipping millions of goods across the economy surges. But other sectors are also feeling the pressure, including manufacturing, hospitality, and retail.

Hotels, restaurants, and supermarkets all face higher energy bills. As profits margins shrink across sectors, so will hiring intentions.

Monetary policy makers typically pile on with interest rate hikes

Most central banks across advanced economies aim to keep inflation near the 2% inflation target. With inflation surging due to energy prices, central bankers usually raise interest rates to slow the economy. The reason is simple: to avoid a repeat of “That ‘70s show” when rising prices and rising wages fed off each other in what is known as the wage-price spiral.

While “good” monetary policy might allow for a “temporary” inflation overshoot above target, central bankers need to be cautious. They will be unwilling to repeat what happened after Russia invaded Ukraine in 2022 when inflation in Europe climbed to 10% and took three years to come back down.

At the moment, shipping through the Strait of Hormuz is unsafe, and global uncertainty remains elevated. Even with a quick conflict resolution, it will take some time for energy prices to normalize. Current economic forecasts suggest inflation is on track to rise by 0.7 percentage points (pp) in the Eurozone, 1.2pp in the U.S., and 1.5 pp in the U.K this year.

Market interest rates have surged in anticipation of central banks to raise interest rates to fight inflation. This is already negatively affecting housing markets and stock prices across advanced economies.

As a result, the oil price shock is slowing economy-wide demand even before central banks have gone through with the rate hikes. Looking ahead to 2026, recent forecasts show a deterioration in the growth outlook of about 0.4pp for the Eurozone and 0.5pp for the U.K.

Side note: The OECD growth forecast for the U.S. shows an upward revision, but this does not reflect the effect of the oil shock. I have used an alternative estimate for the U.S. instead based on projections from EY Parthenon.

Which industries are most exposed to an energy price shock?

The table at the end of the piece summarizes how different industries will be affected by the oil price shock. We distinguish between the supply-side exposure - higher input costs — and the demand-side exposure — lower consumer spending. We’ve also added an additional column for the interest rate shock due to tighter monetary policy.

Unsurprisingly, transportation and warehousing, along with manufacturing are affected the most. Both sectors are highly dependent on energy as an input and suffer when prices surge. They are also relatively exposed to the decline in economy-wide demand. Manufacturing is especially sensitive to higher interest rates

Hospitality is slightly less affected by higher interest, but the sector does suffer immediately from a decline in economy-wide demand. And energy prices squeeze profit margins.

Construction and real estate are highly exposed to rising interest rates because housing demand plummets. In terms of energy exposure, it sits in the middle of the pack.

Education, healthcare, and the government sector are the least affected by rising energy prices and higher interest rates. Government jobs tend to be stable, and healthcare spending is less cyclical.

The energy sector is typically the only one to benefit from the oil shock. However, higher interest rates can be a downside for capital-intensive projects since they raise debt burden and increase financing costs.

What does this mean for recruiters?

The oil price shock means slower growth and higher inflation across advanced economies. No recession yet, but we are one step closer!

Transportation and manufacturing are hit hardest by rising input prices. But hospitality is suffering too, especially as consumers cut back on spending. Recruiters must anticipate weaker job growth and a softer hiring outlook in these sectors.

Additionally, rising interest rates are slowing down economic activity. While some industries will be more resilient — healthcare, public services — a weaker economy will lead to less job creation and fewer hires across the board. Let’s hope that energy prices will start normalizing by end of year.

Photo Credit: Jalen Hueser

We recently explored the macro story of Artificial Intelligence (AI). While those broader effects will take time to fully materialize, we are already seeing meaningful shifts in the geography of jobs across the U.S. A surge in investment in AI-related infrastructure (projected to reach as much as $700 billion in 2026) is fueling localized labor market booms. Notably, much of this growth is occurring in regions that were left behind by the last economic expansion.

The potential long-term upside is a more geographically distributed economy. The tradeoff, however, is emerging quickly: these regions are now experiencing acute labor shortages, creating challenges for local businesses competing with the influx of “AI money”. In this piece, we explore which occupations are benefiting most from this surge in demand and what it means for local labor markets, hiring dynamics, and recruitment costs.

Construction of data centers is creating a job postings boom

AI is often framed as a purely digital phenomenon defined by algorithms, automation, and cloud-based systems. But this framing overlooks a critical reality: AI depends on physical infrastructure. Data centers, energy systems, cooling technologies, and the skilled labor required to build and maintain them form the foundation on which AI operates. As a result, the constraints shaping AI expansion are not just technological — they are increasingly infrastructural and labor-driven. Recent discussions of AI employment have largely focused on high-skill, white-collar roles like software engineers and data scientists, but the most immediate pressure is emerging elsewhere.

The chart below shows how hiring interest has surged across infrastructure-related roles, with electricians, HVAC (Heating, Ventilation & Air Conditioning) technicians, electrical engineers, construction workers, and industrial mechanics leading in both total and unique job postings. The far-right columns (posting intensity and duration) highlight an important dynamic: roles with higher posting intensity (which indicates how heavily employers are leaning on geographic and title expansions) and longer time-to-fill signal persistent hiring difficulty. In other words, employers aren’t just hiring more — they’re also often struggling to fill these positions.

These roles are essential to building and operating data center systems and require specialized training and certification, making them difficult to scale quickly. As a result, the availability of skilled labor has become a key limiting factor in AI expansion. This is not a marginal limitation: The U.S. is projected to face an annual shortfall of tens of thousands of electricians alone, with broader shortages across construction and technical trades.

From an economic perspective, this dynamic reflects a classic demand-supply imbalance: demand is rising faster than the available workforce can respond. Data center construction spending has surged dramatically, reaching nearly $80 billion in 2025, with tens of billions more in active development. At the same time, hundreds of thousands of roles tied to this expansion remain unfilled. Instead of declining after initial spikes, job postings for these roles remain elevated, suggesting positions are taking longer to fill and talent pipelines are constrained.

This signals a broader structural issue: a shortage of workers in the occupations underpinning AI environments. Persistent job postings (especially those that remain open or are repeatedly reposted) are a strong signal of a constrained labor supply. When these patterns appear across multiple markets, they reflect systemic imbalance rather than isolated hiring challenges.

At the same time, the geography of hiring interest is shifting. The map below shows that technology employment is concentrated in a small number of major metropolitan areas. In contrast, AI architecture is expanding into smaller metros and secondary markets where labor supply is often thinner and less specialized. While this creates an opportunity to distribute economic growth more broadly, it also introduces new constraints, particularly in regions where the local workforce is not yet equipped to meet the demand.

Labor supply is not keeping pace with demand

Many of the industries experiencing increased investment in AI infrastructure have relatively small labor pools, limited training capacity, or historically lower levels of interest. As demand rises rapidly, local labor markets are struggling to keep up. This imbalance shows up in several ways, like longer time-to-fill, higher volumes of job postings, and increased competition among employers for a limited set of candidates.

Across the U.S., hundreds of thousands of trade and infrastructure roles remain unfilled, even as demand continues to grow. At the same time, more than half of data center operators report difficulty attracting and retaining qualified workers. These constraints are often most visible in hiring costs. Cost-per-application (CPA) increases sharply at higher percentiles (especially for electrical engineers and skilled trades), reflecting intensified competition for scarce talent. As market pressure builds, employers must invest more to attract candidate attention; and in more competitive regions, CPA rises quickly as companies contend for a limited pool of qualified workers. In practice, this variation can be dramatic: some smaller or more constrained labor markets see CPA climb into the $60+ range, while major metropolitan areas like Chicago or Los Angeles can remain below $10, reflecting fundamentally different levels of competition for talent.

These dynamics are not evenly distributed. At a national level, labor market conditions may appear relatively stable, but localized analysis reveals substantial variation. Some regions remain relatively balanced, while others face acute labor shortages and significantly higher hiring costs. Increasingly, location is not just context — it is a primary driver of hiring outcomes.

What does this mean for recruiters?

AI is accelerating a redistribution of labor demand across the United States, but this shift is happening faster than the labor force can adapt. The result is a widening gap between where jobs are being created and where qualified workers are available. This is driving localized labor shortages, especially in places that weren’t previously built to support this level of demand. In some cases, this is beginning to slow the pace of AI development itself. While AI is often framed as a driver of productivity, its expansion is ultimately limited by the physical systems and workforce required to support it. The future of AI will not be determined by software alone, but by the availability of power, land, and, most critically, skilled labor.

For recruiters, this likely already feels familiar: roles taking longer to fill, rising recruitment costs for the same outcomes, and increasing variability across markets, where one region performs strongly while another struggles. This is not always a strategy problem. In many cases, it reflects the underlying reality of supply and demand. That gap is where friction emerges, but it’s also where the opportunity lies. Organizations that adapt their hiring strategies, invest in workforce development and talent pipelines, and respond to increasingly localized labor market dynamics will be better positioned to compete.

Liz Mahon, PhD is Manager of Data Analytics at Appcast, where she develops analytical strategy and leads a team of analysts in delivering data-driven recruiting solutions with an emphasis on performance optimization, data storytelling, and collaborative problem-solving. She received her PhD from Brandeis University and a BA from Harvard University. Her interests include automation development, research design, and the power of data to make the best recruiting decisions.

Photo Credit: Library of Congress

The U.S. added a whopping 178,000 jobs in March despite the Iran war raising energy prices and spooking financial markets. The unemployment rate ticked down slightly, to 4.3% from 4.4%. Recent months have had unusually large swings in employment – a choppy trend that obscures baseline conditions of a low-hire, low-fire labor market.

You can’t be blamed for feeling whiplash — the February headline figure, already the worst report since the pandemic, got revised down to a loss of 133,00 jobs. The federal government shed 18,000 jobs; so, focusing on just the private sector shows a gain of 186,000 last month. Part of this is a correction in the healthcare sector, which lost 29,000 jobs in February, in part due to a strike. Now that it’s resolved, healthcare bounced back strongly — adding 90,000 jobs. Private payrolls show a slight upward trend since “Liberation Day” last April, when the Trump administration announced widespread tariffs. The current underlying pace of private job creation is about 53,000 on a 6-month moving average. This is at, or perhaps slightly above, breakeven job growth. So not too bad, and definitely not recessionary.

Leisure and hospitality had the strongest month of job growth in 2 ½ years, with a gain of 44,000 jobs. Construction added 26,000 jobs, perhaps a bounce back tied to weather-related distortions in February. Overall, the story of hiring remains as in recent months: healthcare and construction are the main drivers of job growth. Every other industry is flat or down.

The word resilience gets thrown around a lot, but it’s merited. Despite the rollercoaster readings of recent months and the Iran war triggering deep economic turbulence last month, the underlying labor market trends over the past year have persisted. Job growth is slowing, yes, but not in freefall, thanks to healthcare. And as for workers, the prime-age employment-to-population ratio is holding steady at 80.7%, basically unchanged for three years. So, despite hiring being weak, layoffs haven’t materially increased. The “low-hire, low-fire" economy continues.

What does this mean for recruiters?

March’s job figures were a strong rebound from a particularly weak February, but the longer-term trend of concentrated employment growth continues. Recruiters hiring in healthcare and construction still face lingering labor shortages as immigration policy has tamped down labor supply. Recruiters hiring traditional white-collar roles like accountants, finance or administration are likely still seeing lowering needs with a greater pool of available talent.

The question going forward is how more resilience the labor market has under pressure from higher energy prices due to the war in the Middle East.

Here is all of the new content we posted in March. Keep reading for data releases coming up in April and some more cutting-edge reporting from Julius Probst, PhD.

Upcoming Economic Data Releases and Events

• April 3: US Employment Situation Report

• April 10: US CPI

• April 16: Eurozone CPI

• April 17: Eurozone Labour Force Survey

• April 21: UK Labour Market overview

• April 22: UK CPI

• April 28: US Job Openings and Labor Turnover Summary Report

• April 30: US GDP statistics

In recent news:

Julius Probst, PhD

The hire rate in the U.S. at its lowest in 15 years

Despite the U.S. being a net oil exporter, American households are not shielded from the oil price shock. Higher energy prices are driving up inflation. A decline in consumer spending will negatively affect the labor market. Survey data shows that American workers have already been quite pessimistic about their job prospects for a while. No wonder, since the hiring rate just fell to its lowest level in 15 years!

While layoffs (and quits) remain low - characteristic of the low-churn labor market – a further decline in hiring will ultimately lead to higher unemployment.

British consumer sentiment turns sour

Consumer sentiment in the U.K. has been in the doldrums for a while. Economic growth was mediocre in recent years while hiring plummeted and the unemployment rate rose to a decennial high of 5.2%. Nevertheless, the economy was finally turning the corner in the beginning of the year after the Labour government did not hike taxes as much as anticipated. This seemingly improved economic sentiment.

Well, so much for that! With global oil prices soaring due to the conflict in the Middle East, consumers in the U.K. are turning sour again. The Consumer Confidence Index shows that sentiment fell by 6 points to a balance of -21 in March, the lowest in a year. Higher energy prices and soaring interest rates will be an added financial burden to many households for months to come. This can only mean one thing: less income for discretionary spending — think fewer restaurant visits, fewer trips to the pub or the movies, or potentially one less vacation as airplane tickets are soaring.

Economists now anticipate the global oil price shock to add 1 percentage point to inflation and subtract about 0.5 percentage points from U.K. GDP growth this year (with more negative oil price scenarios suggesting even bigger effects). No wonder consumers are in a worse mood again!

While other sentiment indicators suggest that U.K. employers are also getting more pessimistic about the economic outlook, data from the Lloyds Banking Group has a surprise in store. Their business barometer shows that the share of employers expecting to increase headcount ticked up quite noticeably in February compared with the previous year (from 51%to 60%.

For now, businesses may simply try to wait it out and refrain from imposing additional hiring freezes or layoffs. This would be good news from a labor market perspective, especially since hiring has already been so weak for a prolonged period.

German inflation jumps

Germany — and continental Europe — are equally exposed to higher commodity prices. The German consumer price index (CPI) unexpectedly jumped from 1.9% in February to 2.7% in March, its highest leap in more than two years. While this is preliminary data and the subcomponents of the inflation data will only be published in April, there is no doubt that higher energy prices are driving the surge!

Photo Credit: NASA

In his influential 2012 book The New Geography of Jobs, economist Enrico Moretti argued that America’s economic future is shaped by a growing divide between superstar cities — think San Francisco, Boston, Seattle — and the rest of the country.

These “brain hubs” have attracted a large pool of talent, capital, and high-paying jobs since the ‘90s. Meanwhile, less-educated, blue-collar regions stagnated in an economy increasingly driven by knowledge work and tech.

But what if that dynamic is about to reverse?

While our last AI piece focused on the AI investment boom, we may also be witnessing the dawn of a new, new geography of jobs — one where the white-collar metros that once thrived on intellectual labor become more exposed. In contrast, some blue-collar intensive regional labor markets may prove to be more resilient in an age where automation targets desktop jobs instead of manual work.

The old geography of jobs based on manufacturing

Before the knowledge economy took over, America’s economy was built on factories. After World War II, some of the best jobs in the country weren’t behind a computer screen but on assembly lines in booming Rust Belt cities.

• In Detroit, auto plants churned out millions of cars a year, powering the rise of the middle class.

• Pittsburgh was known as “Steel City,” home to massive mills that supplied the raw materials for everything from skyscrapers to battleships.

• Cleveland and Buffalo were key players in metalworking, shipbuilding, heavy machinery, and chemical production — mid-sized cities that punched well above their weight in industrial output

What made these cities special wasn’t just their industrial output but the quality of their jobs. You could work in a factory and still own a home, raise a family and enjoy a secure retirement. These were often union jobs with solid pay, benefits, and job security. College wasn’t a requirement. This was the old geography of jobs, centred around the Rust Belt.

But after a period of rising productivity and global competition — coinciding with China becoming the world’s industrial powerhouse — American manufacturing employment started its economic decline. It began slowly before accelerating in the 1980s.

The New Geography of Jobs based on tech

As America’s industrial jobs were automated, a new economy was built around innovation and knowledge work. Instead of factories, tech companies, pharmaceuticals, finance, and research universities became the drivers of growth. These new jobs didn’t spread evenly across the country but clustered tightly in a handful of large, high-skill metro areas on the coasts.

San Francisco, Seattle, Boston, New York, San Jose, and Washington, D.C. became magnets for talent and capital. They offered dense networks of startups, top-tier universities, venture funding, and high-paying white-collar jobs. Software engineers in Palo Alto, biotech researchers in Cambridge, bankers and quants in Manhattan: the new knowledge workers, many of whom were immigrants.

This shift is what Moretti called the new geography of jobs. In a knowledge-driven economy, jobs and innovation tend to cluster, creating a positive feedback loop between talent concentration and firm location.

Over time, these superstar cities surged ahead not only in job creation but also in wages, productivity, and wealth, leaving the top 1% of households with around 18% of total income.

But there was a downside as the rest of the country started to stagnate. Even within these booming metros, inequality surged.

• Wealth accumulated at the top, particularly in tech and finance, while many others faced stagnant wages paired with rising living costs. The influx of high-paying jobs drove up housing prices, pricing out working- and middle-class residents.

• Service workers — waiters, baristas, delivery drivers — were essential to the ecosystem but couldn’t afford to live near their workplaces.

So, while a handful of cities prospered, the economic divide between places and people grew wider. And unlike the old factory towns, the benefits of the new economy were less broadly shared as many service workers did not benefit from the increase in prosperity in the superstar cities.

AI and the NEW New Geography of Jobs

With the rise of AI, we may be on the cusp of yet another major shift that you might call the new, new geography of jobs — and this time, the disruption is targeting some of the very cities that flourished in the last round.

The coastal finance and tech hubs are more exposed to AI-driven automation. That’s because AI doesn’t automate repetitive blue-collar work but rather white-collar tasks in law, marketing, software development, design, and finance. Many of the very knowledge workers who once defined the new economy may now find themselves in the crosshairs of generative AI.

At the same time, these cities are grappling with a growing unaffordability crisis. For many, the dream of living in a successful metro area has turned into a financial burden. If the core draw of a superstar city — proximity to high-value, in-person work — diminishes for some workers in an AI-driven, remote-friendly world, then what’s left to justify high living costs?

This creates an opening for America’s second-tier cities: places like Austin, Raleigh, Nashville, Columbus, Phoenix, and Boise.

These places offer more affordable living, improving infrastructure, and a growing tech-savvy workforce. If AI continues to decentralize knowledge work and level the playing field, it’s possible we’ll see a broader distribution of opportunity and a revival of these once-overlooked metros, especially with remote and hybrid work being much more prevalent than a few years ago.

And rural America is benefiting from another trend entirely: the rapid build-up of large data centres and related infrastructure — power stations, electricity grids — fuelling the AI economy. Remote areas in states like Virginia, Texas, Ohio and Arizona are experiencing local growth booms as investment spending ramps up.

What does this mean for recruiters?

So will AI flatten the map, or reinforce it? That will be the big question shaping the new, new geography of jobs in the coming decade. The early signals are mixed. The big coastal hubs continue to enjoy many advantages — like thick labor markets, financial and business networks, existing infrastructure — that other cities do not.

Nevertheless, we are seeing signs that AI is already affecting the geographic distribution of jobs. This time, second-tier cities and rural America might participate in the growth boom rather than lose out. A more diversified economy, with gains spread more evenly across the country, would be a welcome change. But it will also bring along new challenges. Companies will not necessarily be able to find all the workers they require in the areas where the work needs to be done.

Our next piece digs into the economics of these local labor market booms — and what they mean for hiring costs and recruitment strategy in the places where the AI economy is being built.

Unemployment and vacancies steady, payroll jobs up

Let’s start with the labor market data. After increasing throughout most of last year, the unemployment rate has kept steady at around 5.2%, showing signs of stabilization. For now, monetary policymakers expect unemployment to peak at around 5.3% later this year before starting a gradual decline. However, this forecast is subject to change, given that a prolonged oil price shock could significantly harm labor markets across advanced economies.

While vacancies showed a marginal drop of 9,000 in February, they have been relatively steady over the 10 months. The large decline that occurred throughout 2023 and 2024 has come to an end with hiring conditions showing signs of stabilization.

The biggest upside of the job report was the better-than-expected employment numbers. February showed an increase of 20,000 payroll jobs. Furthermore, as I anticipated last month, the job numbers for January (and even December) were revised into positive territory. This means that the cumulative employment loss since mid-2024 has been lower than previously thought: only 100,000 instead of 160,000 jobs lost — a meaningful improvement. The last three months now show positive growth of more than 30,000 jobs, according to the preliminary data.

In terms of sectoral performance, there is little meaningful change compared to previous data. Accommodation and retail remain the two sectors with the highest cumulative job losses since January 2024 — exceeding 90,000 and 65,000, respectively. Both sectors have been affected the most by the large increase in employer costs due to the successive minimum wage hikes and tax increases implemented by the Labour government.

One final piece of good news is that salary gains have also stabilized — running at a rate of 4% or lower — depending on which measure one uses. BoE policy makers have been extremely hesitant so far to support the economy with lower rates because of elevated wage growth. Lower salary gains are particularly important now that the BoE is facing yet another shock — surging energy prices — because monetary policy makers might worry less about so-called second-round effects (higher prices feeding back into higher salary demands, leading to even higher prices, and so forth).

Why the oil shock matters for job growth

The massive increase in oil and gas prices has substantial knock-on effects on economic growth and the health of the labor market. Within two weeks, oil prices increased from about $60 per barrel to more than $110. Similarly, gas prices have spiked, too. All this feeds back into inflation via higher domestic energy bills, thereby lowering households’ living standards. Remember that consumption drives around 65% of U.K. GDP; if households have less money available for discretionary spending, it negatively affects economic growth and job creation quite immediately.

The surge in energy prices is also bad news for the private sector, especially for businesses that have high energy costs — think manufacturing, but also hospitality, transportation, and retail.

What it means for interest rates and the economy

Besides reducing household consumption, the energy price shock also has implications for interest rates. Typically, “good” monetary policy would be to disregard the supply shock and tolerate temporarily higher inflation so as to avoid further harming on the economy. However, inflation in the U.K. has already overshot target for every single year since 2021. BoE policy makers have no choice but to respond.

Financial markets are now pricing in two, possibly three, rate hikes for the remainder of the year, compared to two rate cuts before the conflict in the Middle East escalated.

High interest rates hurt the housing market because mortgage rates are getting more expensive. They are also bad for consumption and investment. While the BoE can lower inflation by making borrowing more expensive, it would have negative implications for economic growth and job creation.

What does that mean for recruiters?

The data shows that the U.K. labor market has turned a corner. Job losses have been lower than previously thought and the last three months show modest employment growth. The hiring outlook has modestly improved since the Labour Budget in November.

The bad news is that the turnaround could be undone by the oil shock and the monetary policy response to higher inflation. For now, the BoE will implement a wait-and-see approach as policymakers cannot be confident about how high energy prices will go and how long the shock will last.

That being said, if commodity prices remain at current levels throughout the year, central banks in advanced economies — including the BoE — will have but no choice but to respond to keep inflation in check. Layering interest rate increases on top of a commodity price shock has often pushed economies into recession. While it is too early to tell whether this will happen this time, recruiters should anticipate deterioration in the hiring environment as both households and companies respond to higher living expenses and borrowing costs by reducing spending.

Photo Credit: Campbell

After years of mediocre growth, the United States may be entering a period of stronger economic expansion. As Artificial Intelligence (AI) is starting to have a noticeable effect on economy-wide investment, GDP growth, worker productivity and the labor market, one cannot help but wonder whether we are seeing the rise of a new General Purpose Technology (GPT).

What is a General Purpose Technology, you might wonder?

Economists define it as a technology that has a transformative effect on the economy (and society), propelling growth for years or even decades to come. Examples include the railway boom of the late 19^th century, electrification of households and businesses starting in the 1920, the automobile (pre-WW2), and the Dotcom boom of the 1990s.

In this piece, we will outline four different mechanisms through which GPTs transform the economy and labor market. But does the AI boom meet these requirements? Let’s find out:

Fact 1: Every new GPT has coincided with a stock market boom

Every economic cycle that has seen the emergence of a GPT has also coincided with a stock market boom. Investors get excited (sometimes overly so) about potential revenue generated through the deployment of the new technology during the economic upswing.

In the late 19^th century, investors poured money into railway stocks. Eventually, the market corrected with railway stocks crashing.

The story repeated itself during the “Roaring Twenties” as investors got overly excited about electrification, the automobile, and the economy in general. And again, with the Dotcom bubble.

With today’s AI boom, investors are increasingly wary that U.S. stock prices are historically elevated and potentially in bubble territory.

Fact 2: Capital investment surges

GPTs do not just affect financial markets, though. They have a substantial effect on the tangible economy as capital spending into real assets surges. While stock market frenzies typically end abruptly, the deployment of the new technology creates an infrastructure boom with positive effects for growth long after the bubble pops: The construction of the railway network led to a big economic expansion thanks to surging interstate trade. Electrification and the automobile revolution were the growth story of the 1920s and ‘30s, while the internet and personal computers created the growth boom of the 1990s.

When looking at capital spending today, it surely looks like AI has created a significant investment boom. Annual construction spending on data centers increased from about $10 billion to $40 billion in the last three years alone (+300%). Spending on electricity plants — the infrastructure needed to power those data centers — increased by about $30 billion annually relative to 2020 (+33%).

While manufacturing construction already took off with Biden’s infrastructure stimulus (CHIPS Act and Infrastructure Investment and Jobs Act), it remains approximately three times higher than in 2020. A significant share of that spending touches AI: semiconductor fabrication plants account for a massive chunk, followed by battery plants and clean tech (both of which are needed to support the increased electricity demand coming from AI data centers).

Corporate data reveals that the big American tech companies alone are planning to spend more than $600 billion in capital expenditures compared to $150 billion just a few years ago.

The investment share of GDP dedicated to information processing equipment (like computers and servers), software, and research and development for intangibles is already exceeding levels not seen since Dotcom.

Economic data thus supports the story of a substantial investment boom driven by AI and AI-related economic activities.

Fact 3: Worker productivity picks up, though with a lag

While an investment boom creates higher output quite immediately, the long-run benefits from the new technology and infrastructure spread through the economy more slowly. Companies need to adapt to the changing economic environment, production processes must be rethought and reorganized, products development takes time, workers need to reskill and learn how to use the new technology, etc.

It therefore typically takes a few years until the benefits of a GPT are transformative enough to make workers more productive. While there are early signs that productivity growth is indeed picking up, it is too early to say to what extent AI is a contributing factor.

Fact 4: The occupational mix and the demand for skills shift

Another reason GPTs are transformative is because they create millions of jobs in occupations that previously did not exist. They also replace jobs that rely on and service outdated technologies and infrastructure. This is the “creative destruction” economies need to become more prosperous.

For example, the number of telephone operators increased from just over 150,000 in the 1920 to more than 300,000 in 1950, reaching almost 0.6% of total employment. In the following two decades, more than 250,000 jobs were shed as automation made the occupation redundant.

A faster pace of innovation therefore typically invites worker churn as both job creation and job destruction accelerate. So far, AI hasn’t appreciably driven its own wave of job switching — at least, not yet. For now, other macroeconomic forces have led to a significant slowdown in hiring demand. Global uncertainty, tariffs, and changes to immigration policies have created a low-churn labor market with little worker movement.

Nevertheless, hiring data indicates that the demand for skills in the economy is shifting rapidly with the deployment of AI. In countries like the U.S., the U.K., and Ireland, the number of job postings mentioning AI skills has more than doubled since 2023. Meanwhile, the demand for jobs that are potentially vulnerable to AI replacement — routine white-collar workers and graduates — has fallen.

The AI boom is real - what does that mean for recruiters?

Equity markets are booming, the investment share of GDP is rising, and large U.S. tech companies are spending hundreds of billions of dollars in capex on AI and AI-related infrastructure. All of this speaks to AI being the next big thing transforming our economies — a new GPT.

While one key ingredient is missing – accelerated job creation (and destruction) – AI is changing the demand for skills. Hiring for routine white-collar workers has declined whereas AI knowledge workers are benefiting from the deployment of the technology.

AI is also affecting local labor markets within the U.S. Some metropolitan areas could become more exposed as mid-tier jobs in consulting, tech, and banking are more vulnerable to AI replacement. Meanwhile, the infrastructure and data center boom is creating a hiring bonanza for skilled blue-collar workers – engineers, electricians, technicians, construction workers - in more remote areas of the country: think Virginia, Illinois, Texas, Ohio and Georgia.

While total hires remain low, the demand for skills is shifting, and so is the geography of jobs — which will be the topic of our upcoming follow-up piece.

Photo Credit: Aditya Vyas

The headline number for the February 2026 jobs report is bad, but after you dig into the details – welp, it isn’t much better. There was a shocking decline of 92,000 jobs last month. An important factor was a Kaiser Permanente strike, affecting over 30,000 healthcare workers in California and Hawaii. Plus, federal government jobs declined by 10,000 amid a partial government shutdown. But those factors alone don’t explain away that this is the worst jobs report since the beginning of the pandemic.

Looking at private employment excluding healthcare — so removing the two largest distortions in the data — still shows a decline of 58,000. When labor market growth depends on a single industry, we will inevitably end up with large swings like today.

Indeed, there was weakness across the board, with declines in construction, leisure and hospitality, manufacturing, and professional services, among others. Meager gains in financial activities (+10k) and in retail (+2k) were really the only notable positives.

Killing the Golden Goose

As we’ve covered in detail, healthcare has been the “golden goose” of the labor market – the powerhouse engine of employment growth that’s propped up the labor market. But that took a turn for the worse last month, particularly for Offices of Physicians – a sign that the Kaiser Permanente strike weighed down job gains.

The strike is one factor. But what about all the funding cuts from the federal government? There was $1 trillion in cuts to Medicaid to be phased in over the next decade. There were cuts to state-level Affordable Care Act subsidies, which haven’t been fully reinstated. Perhaps this is a turning point for the industry. It’s just one month of data, so it’s early to be catastrophizing — but it’s a concern.

Ominous signs: Downward revisions, tech hiring and construction slowdowns

There are other concerns, too. This report had many data points for the labor market “doomers” to latch onto. Downward revisions to the tune of 69,000 for January and December is a sign that the hoped-for reacceleration isn’t materializing; and, worse yet, they may be a harbinger of future negative revisions.

Then there was weakness in the Information sector, a rough proxy for tech hiring. Steady job losses there raise fears of A.I.-fueled displacement, whether rightly or wrongly. The combination of weak tech hiring and strong productivity figures from earlier this week will only inflame the A.I. debate.

And then there’s the slowdown in construction jobs, which had been a minor bright spot over the past year (far less than healthcare, but at least generally positive). Perhaps the best explanation for construction weakness is weather-related.

An Older Population

All that we’ve covered until now is focused on the so-called “establishment survey” of the jobs report, which informs the payroll tallies. But there’s other bad news on the household survey-side of the jobs report. That’s the data source the calculates the unemployment rate, which rose from 4.3% to nearly 4.5% (just barely rounded down to 4.4% in February).

Each year, the Census updates its population estimates. And this year was a doozy, as my former boss Jed Kolko explains. Basically, the population and thus the labor force got revised to be noticeably older, in part due to lower immigration. As a consequence, the overall labor force participation rate and employment-to-population ratio were revised lower. That means the total talent pool, whether employed or looking for jobs, is less engaged with work. The talent pool is shrinking.

What does this mean for recruiters?

It means there’s weak job growth and a lower supply of available talent, and both trends are likely slipping lower. Healthcare itself had a bad month, even after taking into account the Kaiser strike. Is that because of something more permanent shifting? We don’t know yet. Finally, it’s worth repeating a mantra we have at Recruitonomics: don’t over-index to one data point. That said, this was a bad one!

Photo Credit: Chris Lawton

While it is true that Keir Starmer inherited a bad economy, the policies that the Labour Party has implemented since gaining power have not exactly improved the U.K.’s economic situation.

The significant increase in the National Insurance contribution in 2024 slowed hiring and led to job losses across several industries, with retail and hospitality suffering the most. As a result, youth unemployment has surged to its highest level in more than a decade.

Domestic policy uncertainty before the 2025 Autumn Budget created another stumbling block for an already sluggish economy and even weaker labor market.

As the fiscal situation improved slightly over 2025 thanks to lower interest rates and higher tax revenues, chancellor Rachel Reeves may have hoped to deliver a calm Spring Budget. In line with a previous announcement, the U.K. government moved to one fiscal event per year — meaning that there weren’t any policy changes announced this week.

Instead, Reeves’ speech focused on the new economic forecasts provided by the OBR (Office for Budget Responsibility). Sidenote: Given what’s happening in the Middle East, those are outdated now — I will get to that later.

Labour’s intent was to mitigate further economic uncertainty and signal stable policy-making and sustainable public finances.

Well, Trump undid their plans — by starting a war with Iran!

What the economic outlook was supposed to look like

The OBR projections released yesterday show that the unemployment rate is expected to peak at about 5.3% by year-end, compared to 4.9% previously. Furthermore, unemployment will remain higher for longer and only gradually head back towards 4% by the end of the decade.

The tax and minimum wage hikes — which are causing a surge in employment costs — are key contributors to this more pessimistic labor market outlook.

In terms of GDP growth, OBR projections show a gradual increase from a somewhat sluggish 1% in Q1 to a more upbeat 1.6% by Q4, with GDP growth remaining in that ballpark in the years to come.

While inflation is still standing at 3% right now, various measures announced in last year’s Budget will lead to a substantial drop in April (lower rail fares, lower household energy costs).

Thanks to the decline in “administered prices” (prices set by the government), the OBR was projecting just a little over 2% inflation in 2026 and inflation at target in 2027.

Mission accomplished for the Bank of England (BoE)?

Not quite! Central to the forecast is the projection that energy prices would remain constant. Well, given what happened last weekend, we can safely throw that assumption out the window!

How the war with Iran is changing the picture

The war with Iran is causing what economists call a supply shock. With significant disruptions in the Middle East and the Strait of Hormuz closed for shipping, Europe is cut off from one of its main energy sources.

Consequently, oil prices surged and British gas prices have gone ballistic – up by 50% since last week!

Meanwhile, stock markets are tanking as traders anticipate higher inflation and lower growth.

The U.K. is particularly affected because domestic electricity prices are more dependent on the price of gas than in continental Europe. With inflation still above the BoE’s 2% target, monetary policy makers will be extremely hesitant to cut rates further even as the sluggish job market demands support.

Financial markets have already cut back on their expectations for monetary easing. Instead of three rate cuts this year, we might only get one! And the BoE will surely not cut in March but postpone it to early summer or later, which will give policy makers more time to assess the inflationary impact of the turmoil in the Middle East.

This also means that the government will face higher borrowing costs, which could wipe out a chunk of the fiscal buffer that the chancellor would otherwise be utilizing this year!

What’s the impact on growth and the job market?

The U.K. labor market has basically been in a recessionary state for a while — certainly from a hiring perspective. In my last piece, I provided evidence that we might finally have reached a turning point.

Alas, the geopolitical events that have unfolded might prove me wrong. What the U.K. economy needs is lower interest rates, which would support consumption, investment, and therefore job growth.

But with the inflationary shock we are facing, the BoE has little choice but to pause rate cuts for now. This, in turn, has implications for consumers and businesses alike: higher interest rates will hold back private sector investment, the housing market, and consumer spending.

And all of this trickles down into a labor market with more sluggish job growth going forward.

What does that mean for recruiters?

The war with Iran is yet another sign that the global economy has fundamentally changed since 2019. The world has become more uncertain and geopolitical shocks more common. And we probably should not expect a return to normal any time soon.

In this environment, companies will act with more caution and hold back on big investment and hiring decisions that could easily backfire. Being a small and open economy, the U.K. is relatively exposed to global economic conditions, which means global shocks like the one we are experiencing right now will continue to be a headwind for recruitment.

Here’s all of the new content we posted in February. Keep reading for data releases coming up in March and a teaser for some exciting posts from Julius Probst, PhD!

Upcoming Economic Data Releases and Events

• March 4: US Job Openings and Labor Turnover Summary Report

• March 6: US Employment Situation Report, EU GDP/Employment

• Mid-March: EU Wage Growth

• March 19: UK Labour Market Report

• March 27: US Personal Income and Outlays Release

• March 31: EU Inflation

In Recent News…

Julius Probst, PhD

Are tariffs higher or lower?

You might be weary of tariffs, but they have been all over the news again.

Why? Because the Supreme Court has ruled that Trump’s tariffs are illegal under IEEPA. Companies might be entitled to get back about $170 billion in tariff revenue the government collected in recent months if the U.S. Court of International Trade decides in their favor.

Does this mean tariffs are lower now? The answer is: not really!

Trump used Section 122 instead to impose a broad tariff of 10% on the rest of the world and plans to bring it up to 15%. However, these tariffs are only temporary and might hold for just 150 days unless Congress votes to extend them (this is unlikely to happen before the Midterm elections, though, as tariffs are extremely unpopular with voters).

Several trade deals that the U.S. administration agreed upon with other countries might need to be renegotiated. The global trade environment thus remains complex as businesses navigate uncertainty about the tariffs they face.

What does that mean for recruiters?

This volatility is bad for the private sector and harms the labor market. Tariffs are at their highest since the 1930s and American companies must make difficult decisions on who trade with and where to invest as the landscape is changing frequently. Business leaders will be cautious to add headcount in such a volatile macroeconomic environment. Therefore, expect recruitment to remain sluggish for now.

AI automation and software developers

An AI research note made headlines this week and moved financial markets. It suggested that the U.S. might experience permanently high unemployment and a declining stock market due to white-collar replacement: A Great Depression scenario caused by AI.

We find this economic scenario questionable and plan to publish several pieces on the economics and labor market implications of AI, pushing back on the doomsday narrative. Coming to your inbox soon!

For now, suffice it to say that many stories about AI are exaggerated or outright misleading.

Example: With Claude, nobody needs software developers anymore since the tool can do it way better, right?

Probably wrong. Software developers are more productive and the tasks they perform have changed dramatically thanks to AI. As it turns out, companies still need them. Hiring for software developers has outperformed the broader jobs market.

The divergence is even more pronounced in the U.K. than in the U.S., with total job postings down by 20% due a weakening labor market while postings for software developers are up by 10%!

What does that mean for recruiters?

Don’t believe everything you hear about the AI jobs Armageddon!

Photo Credit: Florian Wehde

One of the more remarkable economic comeback stories of the last decade is the reversal of fortune within the Eurozone since the end of the pandemic. While Southern Europe experienced a decade of stagnation following the Global Financial Crisis, economic growth jump-started in 2022.

Spain’s economy vastly outperformed the Eurozone with employment growing by about 13% and GDP growing by 11% since 2020 (compared to 7% and 6% for the Eurozone as a whole). This kind of growth is astonishing, especially compared to countries like Germany and Austria, which have basically been stagnant since 2020.

In this piece, I will explain how Spain pulled off this miraculous recovery, why many workers have only seen limited benefits from stronger growth so far, and what it means for the labor market.

Spain’s strength: Drawing in additional workers

How has Spain transformed itself from being a laggard to one of the more dynamic Eurozone economies in just a few years?

Well, a little bit of luck has created very favorable economic conditions for Spain (and Southern Europe, in general):

1. The tourism boom:
   Southern Europe experienced a surge in tourism following the pandemic. Spain’s annual visitors have grown from less than 85 million in 2019 to more than 95 million in 2025. The increase in revenues has created additional jobs in hospitality, accommodation and other tourism-related services.
   

2. Lower trade exposure:

   Spain’s economy is more service-centric and less vulnerable to international shocks. Unlike Germany, for example, Spain is less exposed to the U.S. trade war and China’s strategy of export-dumping on global markets.
   

3. Digital nomads:

   The pandemic has created a trend around digital nomadism. Remote workers have flocked to Spain (and other Southern European countries) for the excellent food, good weather, and the culture — I mean, who wouldn’t?
   

4. Near-shoring within Europe:

   More companies are taking advantage of the cost and wage difference between the European core and the Southern periphery. With the pandemic shift towards remote work, it has been much easier to justify opening offices in Madrid and Barcelona instead of Munich and Vienna. Spain’s workforce is highly educated while the cost of employing a tech or finance worker might be 30 to 40% cheaper.
   

5. Worker inflow from abroad:

   Immigration has been by far the biggest factor boosting Spain’s economy. Total population has grown from about 46.5 million in 2020 to more than 49 million in 2025 — with the entire gain due to immigration. Some Spaniards have returned home due to the improved economic outlook, but most of the inflow is from Northern Africa and Latin America. Many experienced professionals from struggling South American economies (Venezuela, Argentina, Colombia) moved to Spain and, thanks to the shared language and culture, they have found it relatively easy to integrate and obtain gainful employment.

   

6. Labor market slack:

   The economic expansion has also drawn in workers who had been sidelined for years. Registered unemployment has fallen from over 3.5 million in 2021 to under 2.5 million. The unemployment rate declined from 15% to less than 10%. While seemingly still high, the official number probably overstates the problem. Spain’s relatively large shadow economy means that some classified as unemployed are working in the informal sector.

What does that mean for labor demand?

Labor demand remains elevated thanks to strong economic growth. Unlike other European markets, vacancies in Spain continue to be much higher than pre-pandemic and remain close to an all-time high.

Moreover, a good chunk of elevated demand comes from Spain’s “job upgrade”: employment gains in high-value-added sectors like tech and professional services are outpacing tourism-related activities.

Spain’s weakness: Many workers have experienced mediocre wage gains

The Spanish economy has grown by adding workers: the inflow of several million immigrant workers together with the large decline in unemployment has created a job boom. Spain accounts for more than 2 million of the 9 million jobs that the Eurozone has added since 2020.

The reduction in unemployment is, of course, extremely applaudable and alleviates poverty and welfare-dependence. However, long-run economic growth cannot rely on workforce growth alone. Productivity gains are key to raising living standards, and here we see that big improvements have so far been elusive. Wages have barely kept up with inflation in recent years — as is true for many Eurozone economies — particularly for professional service and tech workers.

Another source of disappointment is that, unlike the U.K., output and employment in both sectors have grown by similar amounts.

While Spain is adding plenty of workers in high value-added sectors, there are no signs of any meaningful productivity improvement yet. Instead of just adding quantity (workers), economic growth needs to rely more on quality.

What is the outlook?

Spain’s economy has hugely benefited from the EU’s Recovery Plan set up in the wake of the pandemic. So far, Spain has been the biggest beneficiary with some 55 billion Euros in grants received, 23 billion of which were received only in August of last year. The money is dedicated to finance investment and reforms that raise long-term growth, with a strong focus on green transition, digitalization, skills, and modernizing public administration. Examples include renewables, grid upgrades, broadband rollout, rail and urban transport projects.

The scale of these investments will continue to provide a modest boost to economic growth throughout 2026 with forecasters anticipating some 2% GDP growth (compared to about 1.3% for the Eurozone),

Furthermore, the significant surge in employment in professional services and tech should improve growth performance and lead to productivity gains down the road; it might just take a little longer than expected.

What does that mean for recruiters?

Next to its touristic appeal, Spain has become a new hub for digital nomads and certain professional and tech roles. The labor market is the tightest in many years, even as immigration is adding to labor supply. Appcast’s cost-per-application data shows that recruitment costs in Spain have risen and remain elevated.

For many European companies, Spain remains an appealing cost-effective location thanks to its educated workforce and lower wages. While Spanish workers have not seen big wage gains during the growth boom just yet, the creation of more professional service and tech jobs should eventually lead to productivity gains and benefit companies and workers alike.

Underneath the surface, though, revisions to the payroll employment data show that the job market is in a slightly better place than we thought. And worker churn, a very cyclical indicator, is also picking up.

There is a good chance that the U.K. labor market has finally reached the bottom and will pick up from here, albeit gradually.

Unemployment keeps rising while vacancies stagnate

The unemployment rate increased to 5.2% at the end of last year. That is the highest level since 2015 (excluding a few months during the peak of the pandemic in late 2020). The Bank of England (BoE) now expects that unemployment will increase further this year — peaking at around 5.3% — and will only gradually decline to under 5% throughout 2027 and 2028.

Meanwhile, the number of vacancies has remained relatively flat since last summer. Following the double whammy of the National Insurance contribution increase together with several large minimum wage hikes since 2020, companies remain extremely reluctant to increase headcount. Very weak hiring demand and a rise in redundancies over the last year explain the slow but gradual increase in unemployment as well as declining jobs numbers.

Job growth is negative — or is it?

Preliminary data shows that payroll employment fell by about 10,500 in January, the fifth month of negative job growth. What you should keep in mind, though, is that data revisions to the jobs numbers are quite large.

Before this most recent data was released, we thought that cumulative job losses since August 2024 amounted to about 220,000. However, this month’s jobs report included a large revision of the data for most of last year. In fact, the new numbers suggest that the UK has only shed some 170,000 jobs since mid-2024. While obviously still bad, the updated figures have reduced job losses by about 50,000.

Moreover, revisions lowered job losses by an average of 10,000 each month between July and December 2025. There is good chance that, when all is said and done, this year’s January report might even show minor job gains once we get the final data.

The number of workers changing jobs has also seen a modest improvement: +30,000 in Q4 2025 compared to Q4 2024.

Worker churn is highly cyclical as the likelihood of job switching depends on the health of the labor market. The fact that job-to-job transitions are slightly up and the size of the positive revisions suggest that the U.K. labor market has reached a bottom.

Recent economic surveys suggest an improvement in economic momentum following last year’s Labour Budget. I therefore expect that employment growth will turn positive again soon — if it hasn’t already — as employers have already dealt with the repercussions from Labour’s domestic policies.

Wage growth is driven by public sector pay

Elevated wage growth and high inflation are the main reason why the BoE hasn’t eased monetary policy more. But on that front, we are now seeing some good news as well. Inflation is expected to fall from 3.3% right now towards the BoE’s inflation target of 2% later this year. While public sector wage growth remains high at 6.5%, private sector pay growth has slowed sharply from more than 5% a year ago to 3.5% now.

Weaker wage pressures will give monetary policy makers confidence that the U.K.’s wage-price spiral is finally over.

Financial markets expect that the BoE will cut interest rates twice from the current level of 3.75% to 3.25% by end of year. This will help shore up the jobs and housing market as well as business investment and economic confidence in general.

What does that mean for recruiters?

This jobs report is tainted by the bleak unemployment of 5.2% and another month of payroll job losses. However, that narrative omits important factors. Revisions to the payroll data show that job losses over the last 18 months are quite a bit lower than we previously thought. Moreover, January’s data will be revised again, potentially into positive territory.

Vacancy data has been stable for a year and worker churn, a highly cyclical indicator, seems to suggest that the labor market has stabilized and is potentially picking up, albeit slowly.

With more rate cuts on the horizon, recruiters should expect a gradual improvement in hiring conditions this year. Despite AI and international headwinds, companies will start to increase headcount again as growth turns from sluggish to mediocre.

January’s jobs report suggests a strong start for 2026 and a needed rebound from a weak 2025. Nonfarm payrolls rose by 130,000, unemployment fell slightly to 4.3% and the employment-to-population ratio rose to a near-high of 80.9%, all hallmark signs of a positive jobs report.

Yet the trend of concentrated job growth continues as Healthcare & Social Assistance account for 95% of private payroll growth. Outside of Healthcare and Construction, there’s little hiring demand across the economy.

Furthermore, the annual benchmark revisions were released this month, a standard process in which the Bureau of Labor Statistics matches previously released data against a universal count of employment records from the Quarterly Census of Employment and Wages (QCEW). The total employment level was reduced by 862,000 (not seasonally adjusted) for March 2025. Furthermore, monthly job growth throughout 2025 declined from 49,000 to just 15,000. In simple terms, job growth was lower than we previously thought.

Industry Breakdown

Healthcare & Social Assistance continue to dominate the labor market, adding 123,000 new jobs — the strongest month for job growth since the immediate recovery from the pandemic in 2020. Within the sector, Ambulatory Healthcare Services, which is mostly comprised of outpatient care services, added 50,000 new jobs.

Construction had a solid month as well, contributing 33,000 jobs to overall growth. Within the sector, nonresidential specialty trade contractors added 25,000 jobs, likely due to the AI data center boom. Manufacturing, a sector that has been stagnating under trade policy pressures throughout 2025, also had its first positive month of growth since November of 2024.

Outside of the two sectors above, job growth is anemic at best. In “sitting down” sectors like tech, job growth has virtually been nonexistent. A theory gaining increasing traction among economists — including myself — is that hiring demand is lower due to AI-driven productivity growth.

Labor Force Insights

On the household survey side of the jobs report, we notice several positive indicators following worrisome softening trends in 2025. For one, the overall unemployment rate ticked down to 4.3% after rising steadily for the past twelve months. Joblessness has been concentrated in younger workers (16–24-year-olds) and Black Americans, but both groups’ unemployment rates dropped in January.

The most promising development was the rise of the prime-age employment-to-population ratio to 80.9%, meaning the core of the labor force remains engaged and willing to work.

Given the drop in unemployment and surprisingly strong job growth, the dynamics behind demand (hiring) and supply (workers) shifted in favor of workers this month as wage growth rose at a solid pace of 3.8% for non-managerial workers. Recruiters may anticipate higher wage expectations for skilled trades and healthcare workers over the year as immigration restrictions may renew some modest labor shortages.

What does this mean for recruiters?

The labor market is now tighter than we thought, particularly in skilled trades & healthcare. Immigration restrictions reducing labor supply are starting to have a greater impact, reducing workforce supply. Slower population growth in 2025 combined with an aging population means fewer workers are available to the sectors that need to grow. These headwinds, along with external factors like immigration policy and AI, suggest ongoing hiring challenges that will continue to demand flexibility and awareness from recruiters in 2026.

Photo Credit: BoliviaInteligente

It is well known that the UK’s economic track record has been abysmal since the Global Financial Crisis: productivity and inflation-adjusted wages have barely increased at all. Per capita income is now about 15% lower than in Germany, 10% lower than in France, and roughly the same as in Italy.

The causes of the British malaise are varied: An overly strong reliance on finance before the crash of 2008, Brexit, the COVID pandemic, a dysfunctional housing market, and too little investment — both public and corporate investment have stagnated — have all cost the economy dearly.

But now, for the first time in twenty years, productivity numbers are showing a sign of revival. Private sector investment is increasing and, along with the rise in government spending, providing a boost to GDP. Since employment is falling, this might suggest worker productivity is on the rise.

Just maybe, we are seeing the first indications that the AI boom is supporting economic growth.

A weakening labor market but better growth?

The labor market in the U.K has suffered in recent years. Following the surge in the minimum wage and increase of the National Insurance Contribution, employers have shed some 200,000 payroll jobs since October 2024. Meanwhile, unemployment increased from just over 4% in 2023 to more than 5%.

Retail and hospitality are affected the most. Profit margins have been squeezed by the successive minimum wage and tax hikes, contributing to a loss of about 100,000 jobs in each sector.

But despite the weak labor market, economic activity has been holding up fine. The PMI (Purchasing Managers Index) even points to an acceleration of business output in January (values above 50 indicate economic expansion).

Since early 2024, payroll employment has fallen by about 0.5%. Nevertheless, monthly GDP figures indicate that the economy is almost 3% larger, growing at an annual rate of 1.3%. The combination of steady growth and shrinking employment means that for the first time in decades worker productivity is accelerating: we are producing more stuff with fewer workers.

This is encouraging, given that productivity growth is the main engine for improving living standards and wages.

Insolvencies, redundancies, and creative destruction

Due to the recent increase in interest rates and energy prices, soaring wages and tax hikes, U.K. businesses have come under increasing pressure. The number of insolvencies — situations in which a company can’t pay back debt — surged following the pandemic and has remained elevated ever since.

While businesses failing sounds like a bad thing, there may be a positive upshot in this case. Some economists have argued that the period of low interest rates before COVID created many zombie firms — unproductive and over-leveraged companies — that contributed to the weak productivity growth.

Current economic conditions may be making it more difficult for these zombie companies to survive. Growth might therefore pick up as low-productivity companies go out of business.

Redundancies — the British term for layoffs — have also risen, particularly in low-productivity sectors like retail and hospitality, which have seen most of the job losses over the last two years. Naturally, as less productive work gets automated — think self-checkout counters in supermarkets, for example — aggregate productivity increases.

Shouldn’t we be worried about bankruptcies and layoffs?

Well, it depends. Typically, a recession occurs whenever consumers and businesses lose confidence and stop spending (and investing). This creates a vicious cycle of job losses and even less spending, and so forth. If companies are failing and people are losing their jobs because overall demand in the economy is plummeting, we should worry!

Right now, though, we are not seeing any signs of plummeting sales. Nominal GDP and economy-wide worker compensation — two of the more reliable indicators for overall demand — are holding up well. The former grew at an annual rate of close to 5% in Q3 of last year, the latter more than 7%.

Not only does this show that demand is solid but that it is even growing slightly above trend, contributing to inflation.

The rise in bankruptcies and redundancies is therefore not due to declining sales but rather because weak businesses are under cost pressure, forcing them to close shop and, perhaps, ultimately be replaced by more efficient businesses — which is exactly the creative destruction that Schumpeter envisioned.

Productivity is rising in high value-added services

We all know that the U.K. economy is reliant in the service sector — tech, finance, consulting, etc. — which account for about 58% of all British exports. Now, productivity in high value-added services is rising. ONS data show real output in the tech sector is up about 75% since 2015, while employment has grown only 10%. Moreover, recent trend growth has been noticeably higher compared to the decade following the financial crisis.

Similarly, production of professional business services has risen by about 25% while employment has increased by only 14% with most of the productivity gains accruing since 2021.

The fact that productivity growth is not just relying on the death of retail and hospitality but is also on an acceleration of Britain’s service sectors is an encouraging sign.

Are we killing the talent pipeline? What does this mean for recruiters?

With the current AI rollout, more companies are rationalizing hiring freezes and headcount reductions on account of higher worker productivity. While employment for experienced workers has continued to increase, employment of younger age groups has fallen. Furthermore, the current downward trend in white-collar job ads is also hitting the young significantly harder than experienced hires. With entry level roles in free-fall, young people are arguably experiencing the worst job markets in decades.

This is obviously concerning because AI is not a miracle cure for worker shortages across all occupations. Given demographic developments, the U.K. will experience a shrinking workforce soon enough. The large pool of skilled but older employees will have to be replaced by younger cohorts. The current hiring drought will create challenges within a few years from now.

Recruiters need to make the case to leadership that freezing graduate hiring for several years is incompatible with strategic workforce planning. AI is already the biggest technological upheaval in decades, leading to fundamental changes for the world of work. Young workers who are more adaptable to change, more knowledgeable about new technologies, including AI, will be key to any corporation’s future success.

It would be a big mistake to sacrifice the future workforce for short-term gains even as AI has the potential to replace junior staff.

Ask yourself this: Who will succeed seniors and experienced workers once they leave?

Photo Credit: Etienne Martin

President Trump has nominated Kevin Warsh to be Chair of the Federal Reserve. A former governor, Warsh served on the Fed’s interest rate setting committee from 2006 to 2011. Trump has been intensely critical of the current Fed chair, Jay Powell, whose term ends in May. Pending Senate approval, Warsh could push the Fed to lower interest rates more aggressively, per the President’s wishes.

What’s at stake is the independence of the Fed to conduct monetary policy. The nomination of Warsh comes after a few months where the so-called “debasement trade” has rippled through global financial markets. The implications go beyond the heady world of central banks and finance, and touch on the realities of the labor market and recruitment.

The Powell-Trump standoff

There is very little doubt that Trump’s tariffs have contributed to higher prices. And with inflation still above the Fed’s long-run 2% target, monetary policy makers have been hesitant to cut rates even as the labor market has weakened. The decline of the dollar is making the Fed’s job harder because it increases the price of imports.

Meanwhile, the Trump administration has put continuous pressure on the Fed, to the point of threatening Fed independence with lawsuits. The reason? Trump wants lower rates for the U.S. even as inflation stays above target.

We know from research and real-life examples (Argentina, Turkey, Venezuela) that independent central banks are a very precious public good. Governments are too easily tempted to implement easy-money policies that ultimately backfire and cause surging prices.

In his press conference earlier this week, Powell emphasized the need for Fed independence. He also suggested that current rates will not be lowered because inflation is elevated while the labor market is holding up. It remains to be seen whether Warsh will introduce an inflationary bias into monetary policy making, once approved for the job.

What is the debasement trade?

With government debt soaring across advanced economies, investors are increasingly worried about public debt sustainability. The U.S. debt-to-GDP ratio has now surpassed the World War II peak and is exceeding 120%. Even as economic growth has been solid, Trump’s economic policies are geared towards lowering taxes further — especially for the well-off — and higher spending (defense), a toxic combination that will lead to even higher borrowing.

Given the unsustainable trajectory of U.S. debt, financial markets anticipate higher inflation and therefore also higher interest rates in the future. Investors worry that these trends could lead to the dollar losing value (“debasement”) — something that, to some extent, already appears to be happening: The dollar has depreciated by more than 20% vis-a-vis the Euro since early 2025.

Meanwhile, the rise in global geopolitical uncertainty, largely a result of America’s recent policies (see Venezuela and Greenland) has stoked significant investor anxiety. The gold and silver mania suggests a surge in demand for safe-haven investments; even with today’s market correction, both metals are still some 30% more valuable than they were in December.

The labor market is holding up - for now

Despite very weak job growth, Fed policy makers argue that the labor market is still in fine condition. Even as private sector job growth has averaged a mere 22,000 at the end of last year, the unemployment rate has remained steady.

The combination of an aging workforce with Trump’s restrictive migration policies means that the U.S. will simply not be able to sustain high jobs numbers due to the stagnating labor pool. Fed estimates suggest that labor supply has come to a standstill, meaning close to zero job growth.

The days of high job prints are thus clearly in the rearview mirror, unless migration picks up again under a new administration. Labor demand is clearly cooling as well. Job postings, especially in the white-collar space, have been stagnant for a long time. Open positions for entry level and junior roles have declined significantly. For young workers, this is now a pretty bad job market.

At the same time, both the hiring and separation rate for the overall labor market have remained relatively stable since early 2024. With employment steady, the Fed’s primary focus now appears to be inflation.

What does this mean for recruiters?

Little job growth won’t imminently bother the Fed as new estimates suggest that net migration to the U.S. might also head towards zero. This means that the U.S. labor market can sustain full employment even if very few additional jobs are being created.

Under Powell, Fed policy makers will continue to focus on inflation simply because the unemployment rate remains steady and the labor market is holding up — but this could change under Warsh.

Unfortunately, many of Trump’s policies have an inflationary bias. This means that there is very little room to cut interest rates in the foreseeable future. Even if Warsh disagrees, he still needs to convince the other members of the monetary policy committee.

GDP continues to grow…

Without a doubt, both economic sentiment and consumer spending have been weak in the U.K. since the pandemic. Nevertheless, economic growth has been okay — expected to come in at 1.3% for 2025. Furthermore, forecasters are anticipating a slight increase in economic activity this year, though risks are probably skewed to the downside, given how volatile the global geopolitical situation currently is.

…but employment is down

Despite a growing economy, though, the labor market continues to weaken. The successive minimum wage hikes together with the increase in National Insurance (NI) contribution — effectively a tax hike — have led to surging employment costs, with predictable effects for employment: more than 200,000 jobs have been lost since June of 2024.

The unemployment rate increased to about 5.1% in Q4. While some of this is due to more people looking for work, employers have continued to shed jobs, particularly in retail and hospitality. With profit margins typically low in those sectors — think pubs, restaurants, and High Street — some businesses had little choice but to lower headcount.

Younger workers continue to suffer

The combination of AI adoption together with a weak macro environment has created a very tough labor market for young people entering the workforce. Hiring for junior and entry level roles has plummeted. Many companies, especially in the white-collar space, have used AI as a rationalization to cut graduate roles. As a result, youth unemployment has risen significantly faster than aggregate unemployment. And payroll employment losses have been concentrated in the 24 and younger and 25 to 34 years old age groups; younger workers therefore account for a significant share of the job losses that have occurred since 2024.

Higher productivity: one upside?

Low productivity growth for many years is the main reason for the stagnation in living standards in the U.K. The recent combination of higher GDP and fewer jobs, though, implies a productivity boost: we produce more stuff with fewer workers. Research from the Resolution Foundation shows that productivity might have exceeded 3% since Q2 2024, faster than official numbers suggest.

While too early to tell for sure, this could be the very early signs of an AI boom, as business investment has increased. Alternatively, the recent rise in insolvencies might have bankrupted low-productivity businesses (zombie firms).

Either way, faster productivity growth could help the U.K. overcome its economic malaise.

What does that mean for recruiters?

The U.K. labor market continues to weaken for now, providing ample candidate supply for most roles — though hiring for specialist and experienced positions might still be difficult. Do not expect this to last forever, though. Two factors weighing on the labor market — the minimum wage and NI hike — are probably in the rearview mirror as most employers have done the necessary adjustments. Furthermore, the increase in productivity makes me cautiously optimistic that future growth might be modestly higher than expected, thanks to the AI boom. While it’s too soon to be certain, the massive surge in the demand for AI skills suggests that the labor market is changing. Employers should adopt their talent attraction, talent retention, and employee reskilling strategies accordingly.

Photo Credit: Christian Lue

First of all, big congratulations to Bulgaria as it became the 21^st Eurozone member on January 1!!!

Without a doubt, the Eurozone project has been a stunning success. The region now accounts for 360 million people and a GDP of more than €15 trillion, making it the third-largest economy in the world.

Despite the Eurozone crisis more than a decade ago, another six countries in Southern and Eastern Europe have joined the club since 2009.

The appeal for these economies is obvious as many of them have experienced a volatile inflation history. Euro membership promises stable prices and lower interest rates, with obvious benefits for both the public and private sector. However, with growing membership, a new problem is now threatening the Eurozone: economic divergence!

Eurozone inflation rates have diverged

In the years preceding the pandemic, inflation rates across the Eurozone were not too dissimilar: the difference between the highest and lowest inflation countries was a mere 2 percentage points.

That changed with the global macroeconomic shocks Europe has been exposed to in recent years, including the energy price crisis following COVID and the war in Ukraine. The Baltics saw their inflation surge to above 20% in 2022 while the average Eurozone inflation rate was about 10%.

Even with average inflation now back at the 2% target, some countries are seeing inflation rates above 4% (Croatia, the Baltics) while others are close to 0% (Cyprus): the gap has widened.

Ditto for wage growth

Naturally, higher inflation countries are also recording higher wage growth — workers do not enjoy losing purchasing power! Wage growth for job advertisements is showing significant divergence across Eurozone economies, ranging from less than 2% in France to almost 5% in the Netherlands and Ireland, for example.

Some countries are booming while others stagnate

The disconnect between the North and the South is not just about inflation and wages, but also economic growth.

Even when disregarding obvious outliers like Ireland — which is booming because of its status as global tax haven — many countries in Southern and Eastern Europe have grown by 10% or more since 2020. On the other hand, the core Eurozone economies like Germany and France, together with parts of Northern Europe, have been stagnant.

Due to lower living standards, economies in Southern and Eastern Europe are expected to grow faster to catch up with the rest. But the pace of convergence is stunning. Poland is growing at a rate of 3% and has overtaken Japan in terms of per capita GDP. Spain’s economy is also enjoying an enormous economic revival.

After a decade of stagnation, Southern Europe is not just enjoying a tourism boom. Economic dynamism generally seems to have been revived. Labor markets are healing as the region boasts the lowest unemployment rate in decades.

Why divergence is so hard to fix in the Eurozone

Economists have criticized the Eurozone’s institutional setup right from the start. Economic theory suggests that a common currency only makes sense for geographies that have a high degree of economic integration: high labor and capital mobility, high inter-regional trade flows, similar institutional setups, etc. These features are necessary for economies to deal with shocks that affect regions unevenly.

The U.S. largely qualifies. If one state gets hit by a large economic shock, depressing the local labor market, workers can easily migrate and find work elsewhere. In the Eurozone, by contrast, language, cultural, and institutional barriers sharply limit cross-border worker mobility. The result is that local shocks tend to persist. After the Global Financial Crisis, unemployment in parts of Southern Europe exceeded 20% for years, while countries like Germany or the Netherlands remained close to full employment.

This lack of adjustment mechanisms makes divergence especially problematic in a currency union. The European Central Bank must set one interest rate for 21 very different economies. Inevitably, this “one-size-fits-all” approach creates problems: monetary policy is too tight for weak economies that need stimulus and too loose for booming ones that face inflationary pressures. Rather than smoothing economic conditions, uniform monetary policy is creating boom and bust cycles — prolonging downturns in some countries while fueling overheating in others. This tension pitted Germany’ stronger economy against weak economic growth in Southern European during the Eurozone Crisis and has now resurfaced in the post-pandemic recovery.

In principle, national fiscal policy could help offset these imbalances. Governments in weak economies could stimulate demand, while those in fast-growing regions could tighten policy to prevent inflationary pressures.

In practice, though, fiscal policy is riddled with problems. Spending decisions are slow, politically constrained, and often inefficient or outright wasteful. Even countries with low public debt like Germany are struggling to implement fiscal stimulus in a timely manner despite a two-year long economic downturn.

Conversely, governments are rarely willing to tighten policy in a boom. Few politicians have the courage to take the punchbowl away when the party is going.

The experience of the early 2000s illustrates the risk. Capital flows into Southern Europe amplified booms, inflated asset prices, and created credit bubbles that ultimately collapsed. While growth is more balanced today, the same structural forces remain in place. With limited worker mobility, a single monetary policy, and ineffective fiscal rules, the Eurozone will struggle to prevent today’s divergence in inflation, wages, and growth from becoming entrenched —– potentially sowing the seeds of the next crisis.

What does that mean for recruiters?

Recruiters hiring in Europe always had to pay attention to each individual market due to different hiring regulations, wage-setting behavior (collective bargaining or not), and local laws and institutions. However, at least inflation and wage growth were not too dissimilar across Eurozone economies before 2019. But that has changed now!

Economic uncertainty remains high and inflation and wage growth are volatile in the post-pandemic world. Recruiters need to pay more attention to national conditions as Eurozone economies have diverged significantly. This requires more careful workforce planning and salary benchmarking by country, or else risking being left behind in a competitive talent market that shifts more quickly than before.

Photo Credit: Sean Pollock

The final jobs report of 2025 showed a continuation of trends from the previous eight months: moderating job growth concentrated in healthcare and subtle warning signs of a struggling job seeker. Overall job growth rose by 51,000 in December but over a three-month average declined by 22,000, largely the result of DOGE cuts. The unemployment rate fell modestly to 4.4%, which can partly be explained by statistical wonkiness from the shutdown.

Yet, removing the effects of the shutdown and deferred resignations, private payroll growth is growing at just 29,000 over a three-month average — less than half the pace of the pre-Liberation Day trend. Policy uncertainty and restricted immigration explain most (though not all) of the recent decline in job growth.

After accounting for DOGE cuts and labor supply, private payroll growth weakened throughout 2025 as hiring appetites diminished. 2025 was a year marked by uncertainty. When government policy rapidly shifts, often businesses hold back on hiring and investment decisions. Reflecting on the years’ worth of data, it’s clear that most sectors across the labor market slowed hiring.

Industry Breakdown

By sector, healthcare & social assistance was the main contributor to growth in 2025 — but it ended the year with its lowest contribution yet, adding just 38,500 jobs. The house passed an extension of ACA subsidies yesterday, a major headwind for healthcare hiring in 2026 as millions were at-risk of higher insurance premiums.

Goods-oriented sectors struggled in 2025: manufacturing employment declined 68,000 in 2025; likewise, transportation & warehousing declined by 79,800 jobs. Industries sensitive to trade policy felt harsher impact than service-oriented sectors like hospitality and healthcare.

Earlier this year, I published a blog on what seasonal retail hiring may look like in the fall of 2025, predicting lower retail hiring demand than years prior. The retail sector lost 25,000 jobs in December (seasonally adjusted), yet the three-month trend in job growth is positive at 9,000. Compared to 2024, seasonal hiring was modestly higher in 2025 but still below the pace earlier in the 2020s.

The tech industry, and more broadly white-collar hiring, struggled immensely in 2025. Both the Information sector (-26k) and Professional & Business Services (-62k) reduced employment in 2025. Elevated interest rates from 2023 onwards have weighed heavily on these industries, but several rate cuts by the Fed in 2025 may open a path towards modest growth in the new year.

Labor Force Insights

Job seekers are clearly struggling in this labor market: the median number of weeks a worker is unemployed rose sharply to 11.4, its highest point in nine years. Some of this may be explained by the government shutdown, yet its clear workers are taking longer to find new jobs. The increasing length of unemployment is concentrated in long-term unemployment, as both workers who were unemployed 15 to 26 weeks and 27 or more weeks steadily crept up.

Despite cracks in the margins of the labor market, the core remains intact. The prime-age employment-to-population ratio (the percentage of the population aged 25-54 who are currently working) is still 80.7%, a near-high for the cycle and a positive sign. Outside of that group, the unemployment rate for younger workers rose steadily to above 10% in 2025.

As hiring demand has cooled, so has wage growth. Average hourly earnings growth for private-sector non-supervisory workers ticked down to 3.6%, its lowest reading in the post-pandemic recovery. Other measures of earnings growth tell a similar story: advertised wages on Indeed are growing at just 2.3%, while the Employment Cost Index grew at 3.5% in Q3 of 2025.

What does this mean for recruiters?

Job growth slowed in 2025. That picture is muddled by several factors: a sharp drop in Federal Government employment from DOGE cuts, lower labor supply due to immigration restrictions and post-liberation day trade policy uncertainty.

Taking these forces into account, the labor market is in its weakest state in the post-pandemic recovery. Yet, broader economic growth according to GDP is rip-roaring. Perhaps businesses and workers have become more productive post-AI boom, reducing hiring needs.

For recruiters in healthcare and other service-oriented sectors like restaurants, hiring demand will likely persist in the new year. For recruiters in goods-oriented sectors, the picture is mixed. The Supreme Court will imminently issue a decision on Presidential tariff authority, which may radically shift the outlook going into 2026. Data center construction may continue to be a tailwind for skilled trades hiring.

The Ghosts of Christmas Past and Present are haunting the labor market as the U.K. economy sheds jobs for the second winter in a row.

According to preliminary data, more than 190,000 jobs have been lost since the fall of 2024. The first Labour Budget after the election played a big role. Employers’ wage costs increased tremendously due to the hike in the National Insurance Contribution. This, combined with the massive surge in the minimum wage, has caused significant employment losses across several industries, especially in low-margin sectors that also have high labor input costs. Unsurprisingly, retail and hospitality have suffered the most with job losses of about 100,000 and 70,000, respectively.

While the 2025 Budget was not as disastrous as the previous one, confidence in the U.K. economy has been shattered. Rumors about significant tax hikes for both households and businesses in the months leading up to the event contributed to a period of economic stagnation this fall. With consumers tightening their belts and businesses wary of costs, payroll employment declined by almost 40,000 in November, following declines in September and October.

The unemployment rate is now at its highest level since COVID. While there are some data concerns, the weakening of the labor market is clear as day, and of larger magnitude than what other countries are experiencing. The UK unemployment rate has risen from a little over 4% in 2023 to 5.1% last month. For the first time in more than a decade, U.K. unemployment is higher than the OECD average.

The labor market for young people in the U.K. is significantly worse than that for professional hires. As white-collar recruitment has slowed — because of a weak macro environment but also because of AI — job vacancies for graduate roles have plummeted. Youth unemployment has increased to 14% recently, a decade-high level. The number of young people who are NEET — not in employment, education, or training —– has soared and s now exceeds 900,000.

Why so timid on rate cuts?

Today’s interest rate cut by the BoE was widely anticipated following the weak labor market data. But compared to other advanced economies, rates in the U.K. remain relatively high for now. There is no doubt that monetary policy has weighed on economic activity in recent years and contributed to the job losses that the U.K. is experiencing.

So why then is the Bank of England not cutting rates more aggressively to support economic growth?

Well, because the U.K. has been a little bit of an outlier across advanced economies when it comes to inflation and wage growth. Even as inflation has fallen more than expected this week, with more than 3% it remains well above the Bank of England’s 2% inflation target.

While private sector pay has recently fallen from above 5% to about 4%, public sector wages have recently increased at a much faster rate. Thanks to very generous government pay policies, public wages are now increasing at a rate of 8%. That pace is obviously extremely unsustainable, both from a fiscal as well as from an inflation point of view.

While pay growth is expected to moderate somewhat in the coming year, the BoE continues to operate with caution and does not want to ease monetary policy prematurely — a not-so-merry cut — given the enormous inflation overshoot that the U.K. has experienced in recent years.

Financial markets are pricing in another two rate cuts for 2026. While this will modestly support economic activity, it will not be able to provide the growth boost that the U.K. so desperately needs.

The bigger worry: Does Labour have a plan for growth?

Heading into 2026, the bigger worry to me is that Labour has no plan for growth.

No doubt they inherited a bad economy, but they have been incapable of implementing any meaningful change so far. As previously discussed, their big policies – NIC hike, minimum wage, the Employment Rights Bill – have spectacularly backfired and contributed to a stagnant labor market.

According to Starmer, higher childcare allowance, freezing train tickets, and slightly lower energy costs are enough to deliver a better economic outcome next year. Well, if that is their thinking, thoughts and prayers are in order!

As we have emphasized on several occasions, lackluster private sector investment, Brexit, unaffordable housing, underinvestment in infrastructure and energy sector – those are the big-ticket items that are holding back U.K. economic growth.

On many fronts, the government’s ambitions have fallen well short of what’s needed to revive the economy. As a result, the OBR and other institutions have revised future economic growth down as Labour seems to be more preoccupied about maintaining and increasing welfare spending than supporting economic growth.

But maybe there is some rethinking happening after all. After years of impasse, Labour has approved new runways for London’s airports. And just this week, a consultation for the most ambitious proposal for planning reform in decades has started. Even if only some of the proposals will eventually pass, it could be meaningful change as unlocking Great Britain’s housing market is essential for future economic growth.

What does that mean for recruiters?

For recruiters, this is a very different market from the one they faced just a few years ago. Hiring demand is weaker, candidate pools are growing, and cost pressure is forcing employers to be far more selective about when and where they hire.

But this is not a uniform downturn: demand for experienced, high-productivity talent remains more resilient, while entry-level and low-margin roles are bearing the brunt of the adjustment. Furthermore, hiring for niche roles, especially in the blue-collar segment, remains tricky.

In this environment, recruiters will need to focus less on volume and more on cost-effectiveness. This means helping employers hire fewer people, faster, and with clearer returns on investment as companies are striving for efficiency in the current volatile economic environment.