Photo credit: Annie Spratt

Global labor markets have weakened in recent years. The substantial decline in vacancies has made it more difficult for jobseekers to find new job opportunities in today’s economy. In this “low-hire, low-fire” labor market, one group has suffered disproportionately: junior workers. Job postings for entry-level roles have fallen significantly more than those for experienced professionals. The technological disruption caused by AI is the obvious culprit. However, some research suggests the increasing prevalence of working from home (WFH) could be responsible.

We will look at how both channels affect young jobseekers, and which one plays the bigger role.

The labor market is tough for young jobseekers

Let’s start with the facts: the labor market has clearly worsened more for young people than for experienced workers. Data from ADP — a payroll service company — shows that the private sector continues to create jobs for mid-career and senior professionals. Early-career employment, on the other hand, has fallen since 2023.

Nowhere is that gap as striking as for software developers. Early-career employment has fallen by a stunning 20% (ages 22-25), while mid-career employment (ages 41-49) is up by 21%.

What is interesting is that this trend is unfolding simultaneously across advanced economies. The deterioration in early-career job prospects is being aggravated by the use of AI, with some jobseekers sending out hundreds of applications without getting a foot in the door. While employment for young people started to dip around the time ChatGPT was released, graduate hiring had already been falling for a year before then, predating the widespread adoption of AI. This strongly suggests that AI cannot be the only factor causing this.

Why remote work is hurting early-career jobs

The COVID-19 pandemic significantly transformed how the labor market functions for some workers. While some employers are trying hard to get workers back to the office every single day, the reality is that labor markets have settled in a new equilibrium: the share of jobs offering remote or hybrid work has remained elevated, holding at about 12 to 16% in most countries since the pandemic. Switching to a more WFH-friendly employer if push comes to shove is always a viable option, making it less likely that most companies dial back hybrid work.

While the U.S. looks like an outlier on this chart, data from the Bureau of Labor Statistics confirms that more than 10% of all workers are fully remote, and another 11% are hybrid. Maybe U.S. employers simply don’t advertise this benefit aggressively enough on Indeed?

For experienced staff, the upside of remote work is obvious: lower commuting time and cost, the option to live in a cheaper area, etc. But this new reality might quietly tilt the labor market against young workers.

Why, you ask?

Young workers with little or no work experience require significantly more training and hands-on supervision. A lot of the early-career skills are absorbed through proximity to colleagues, including spontaneous mentoring and coaching. This mechanism is disrupted in a fully remote setting, increasing the cost of inexperienced hires. As human capital accumulation builds more slowly, the return on hiring young workers goes down, while the cost rises. Due to the longer payback horizon, graduate hiring falls. Some studies have recently asserted that a big chunk of the decline in graduate hiring is due to WFH.

What about AI?

On the other hand, a separate strand of literature is blaming AI. The mechanism here is more obvious. AI is a labor-displacing technology that can do a lot of the grunt work that graduates were formerly doing at a fraction of the cost — that’s the argument put forward by some executives, at least. And there is obviously some truth to that. Graduate employment across investment banking, consulting, and large tech employers has fallen, as technology has been deployed to do some of the work.

However, it is not entirely clear yet to what extent AI is a labor-displacing technology. A new study shows that firms with high AI adoption are actually hiring at a faster pace than companies that do not adopt it. More interestingly, AI-intensive firms also seem to hire more junior graduates today than the rest of the market. Now, this effect might simply arise because these companies have much higher revenue growth than the rest of the economy. It's therefore not surprising that they also see a faster increase in headcount for now. But the authors try to control for this by comparing early AI adopters with similar companies that adopted AI a little later — and the result holds: they still hire more juniors.

Source: A New Look at AI’s Impact on Jobs: Firm-Level AI Spending and Workforce Adjustment

Why researchers struggle to find the definitive answer

Here is where it gets tricky though. For each occuapation, we combine a measure of AI exposure from the Budget Lab with data on the WFH share. Our analysis shows that the correlation between the two is extremely high — 75.6%, to be precise, based on about 700 different occupations in the U.S.

The problem is that statistical inference becomes more complicated when two variables are so highly correlated. When researchers try to estimate the effect of AI on junior roles, they might inadvertently pick up the WFH effect instead — and vice versa! Previous research that has not taken this into account is therefore likely biased.

Where do we come down?

In my opinion, Lambert and Schindler’s paper on the broken career ladder for young workers has one of the more credible research designs for disentangling the two labor market shocks. The authors document the significant correlation between AI and WFH exposure. In their statistical analysis, they find that each metric on its own explains a significant part of the decline in junior hiring. But when estimated together, the AI effect disappears, while the WFH effect remains highly significant. AI might therefore not be the main culprit at all — it’s apparent effect might simply be the WFH channel working in disguise.

Of course, their study is not the final verdict on this topic. Moreover, technology is evolving rapidly, while the share of WFH jobs has stayed constant in recent years. Even though this doesn’t seem to be the case today, it is possible that the AI effect on graduate hiring might dominate the WFH effect in the future.

What does this mean for recruiters?

The labor market for young people has worsened significantly, with entry-level job openings at a decade low. While many blame AI for displacing these jobs, economic research suggests that the WFH channel is more important as it raises the cost and lowers the return on inexperienced hires. We also shouldn’t forget the sluggish macroeconomy, constrained by high interest rates, supply-side shocks, and global uncertainty. These factors have also weighed on jobseekers’ prospects.

If you are working in recruitment, you might have a good understanding of whether WFH, AI, or a combination of both has contributed to your company hiring fewer young workers. Either way, the downstream effects of depressed graduate hiring will be felt in the coming years. Let’s not forget that many advanced economies face a retirement tsunami as the large cohort of baby boomers is gradually leaving the workforce. Even with AI, many companies could experience severe labor shortages down the line. But right now, building your young talent pipeline is cheap. Employers should take advantage of this moment, or risk scrambling for young talent again when the market is tight and competition fierce.

Photo credit: Andriy Blokhin

Have you ever wondered what the hardest-to-fill jobs are in the U.S.? Well, lucky for you, we have the answer!

To create this ranking, we use Appcast’s proprietary Recruiting Difficulty Score (RDS) developed by Sam Kuhn. The metric is designed to measure how challenging it is for employers to hire for a given occupation. For that purpose, it is not enough to simply look at the jobs with the largest worker shortages. Instead, we focus on occupations with the highest ratio of active job postings to total employment — a measure of demand relative to the size of the available workforce. Our metric also considers median posting duration, which shows how long a job advertisement remains active. Occupations with exceptionally high hiring needs relative to candidate supply, combined with elevated time-to-hire, receive the highest RDS.

1. Special education teachers

Contrary to what many would predict to be the hardest occupation to fill in the U.S., it is special education teachers who take the No.1 spot. Despite earning comparable pay to their general education peers (about $65,000 per year), special education teachers face significantly greater demands on the job. Another issue is that fewer people are entering the field, while the number of students who require special education services continues to increase. In March 2024, 51% of public schools nationwide reported that they would need to fill positions in special education. All these factors leave candidate supply short of demand in today’s labor market.

2. Counselors

The first of many healthcare occupations on this list, counselors are extremely hard to hire in today’s labor market. Becoming a licensed counselor in the U.S. requires a long process. Candidates must earn bachelor’s and master’s degrees, accumulate 2,000 to 4,500 hours of supervised clinical experience depending on the state, then pass a licensing exam. All told, that puts most counselors in the job market roughly eight to nine years after starting college. A broader pipeline of candidates, along with a slightly more stable and less demanding day-to-day, is what keeps this occupation just below special education teachers.

3. Dentists

Like counseling, dentistry requires eight years of schooling before a candidate reaches the job market. This, along with an aging U.S. population, means demand is rising faster than supply can keep up. Being a dentist also means missing out on the remote or hybrid perks many of their peers enjoy. You can’t do a root canal over Zoom. However, thanks to the occupation’s strong pay (exceeding $170,000 per year), young people still choose this path over many others, keeping the ratio of active job postings to employment slightly lower than the two above it on this list.

4. Magnetic resonance imaging (MRI) technologists

The most specialized roles on this list so far, MRI technologist positions are becoming increasingly hard to fill in 2026. As the population ages, demand for MRIs increases, making the need for skilled technologists to operate these machines even more critical. The hiring challenge is significant enough that many facilities have opted to upskill existing CT or X-ray technologists in-house rather than take on the cost and difficulty of recruiting externally.

5. Pediatric surgeons

Much like dentists and counselors, pediatric surgeons have a long way to go even after they graduate from college before they hit the job market. Along with eight years of schooling, they must pass licensing exams, complete a five-year surgical residency and a two-year fellowship, and then receive specialty board certification. Also, like many on this list, all of the work must be done in person. What keeps this occupation lower on this list is the number of pediatric surgeons in the U.S. These specialists are concentrated in a few major metropolitan areas. Smaller and rural hospitals often can’t afford — or don’t need — these surgeons, which caps how high demand can realistically climb.

6. Obstetricians and gynecologists (OB/GYNs)

For many of the reasons listed above, OB/GYNs are becoming increasingly hard to hire. High education requirements, lengthy residencies, extensive exams, and letters of recommendation all discourage younger people from entering the field. Paired with an aging workforce and high burnout rates among OB/GYNs, this causes demand to skyrocket. However, high compensation attracts a fair share of candidates, and the field is one of the smaller ones on this list. This places OB/GYNs at No. 6 on the Recruiting Difficulty Score.

7. Electrical and electronics installers and repairers (transportation equipment)

Just below OB/GYNs at No. 7 is the first occupation on this list outside education and healthcare. This is an extremely niche job with tasks that include the installation and maintenance of electronic communication equipment. As technology evolves rapidly, technicians increasingly need proficiency in areas they were never expected to master before. Modern transportation systems are software-driven rather than mechanical. As this occupation becomes less blue-collar, the talent pool shrinks. The candidates who would thrive in roles like this often become data analysts and software engineers instead, leaving recruiters scrambling to fill these positions.

8. Psychiatrists

Mental health demands have soared over the last decade, putting significant pressure on the supply of professionals in sectors like psychiatry. This spike in demand is compounded by the lengthy education requirements for psychiatrists, which means candidates can spend an entire decade training before they are even eligible to be hired. Notably, Lightcast data shows that 31% of employment for psychiatrists is within physician offices and medical group practices. These practices generally face greater hiring challenges because they offer lower compensation and fewer benefits, and they have smaller recruiting teams. Together, these conditions have made psychiatrists increasingly difficult to hire in the U.S. labor market.

9. Sales representatives (technical and scientific products)

Taking a different turn from many of the previously listed occupations, technical and scientific sales representatives have steadily become harder to hire in the U.S. Workers must typically acquire specific knowledge that requires lengthy training and education, while they also need to be skilled in persuasion, relationship-building, and closing deals. It can take up to 10 months for a new hire to reach full productivity. This causes hiring managers to be more cautious when evaluating candidates, extending the time-to-fill for these specific roles and contributing to their high RDS.

10. Cardiovascular technologists and technicians

As cardiovascular issues climb with the aging population, demand for cardiovascular technologists rises alongside them. Highly specialized training and certification requirements, along with grueling on-call shifts, leave candidate supply well below what is needed. Hospitals also compete with staffing agencies for the same pool of certified technologists, since travel and contract assignments typically offer higher hourly pay and more control over scheduling. The certification and schooling required to enter this occupation do not offer much career mobility, so younger students often choose more generalized healthcare paths instead. These factors lead to a limited applicant pool in an occupation where demand keeps rising.

What does this mean for recruiters?

Looking at this list, a clear pattern emerges — healthcare occupations are consistently among the hardest to hire for in the U.S. With expensive, rigorous, and lengthy education requirements, plus residencies and certifications to complete, it is no surprise that these jobs are more difficult to fill than others. All the occupations above require effort and highly specialized skills, while also being unsuitable for working from home, making it rarer for young people to choose these fields.

This isn’t to say that you should worry about running out of doctors anytime soon. Rather, the data suggests healthcare recruiters will struggle more than most in today’s labor market. For these difficult positions, recruiters typically need to spend significantly more to attract suitable candidates, which means a higher cost-per-application compared to the industry average.

This piece was written by our summer intern Logan Umbach, an undergraduate studying economics at Bates College. Sam Kuhn provided the analysis behind the ranking.

This is a pivotal moment the U.K. economy. Yesterday, Andy Burnham became Britain’s new prime minister, arriving at Downing Street to deliver his first speech in office. In a surprise decision, John Healey was announced as chancellor, an apparent signal that the new government will not throw fiscal orthodoxy completely to the wind. Despite that move, financial markets were rattled a little by some of Burnham’s early announcements on higher government spending, with cutting household costs among his key priorities. Interest rates on long-term government bonds increased initially on Monday following Burnham’s first speech but have stabilized since. Employment figures offer further relief for the new government, with the job market seemingly stabilizing for now after being hit by the energy price shock earlier this year. The unemployment rate remains steady, while payroll employment is contracting marginally. Wage growth is falling to the lowest level since 2020, which will allow the Bank of England (BoE) to keep interest rates on hold.

The job market is stabilizing

Contrary to expectations, the unemployment rate remains unchanged at 4.9% despite the economic fallout from the new energy price shock. As a result, the BoE’s forecast of unemployment rising to 5.3% by the end of the year is probably a tad too pessimistic. While some concerns about the data accuracy of the household survey remain, payroll job figures confirm that the labor market has stabilized.

Job growth throughout May and June now stands at zero, with May’s job gain of about 3,000 being canceled out by a contraction of similar size in the following month. While not spectacular by any means, the figures are better than anticipated, given elevated global uncertainty and rising energy prices. Furthermore, April’s payroll job losses were revised down to about 30,000, bringing the cumulative job loss since late 2024 to about 170,000. As we anticipated, the initial figure of 100,000 job losses for April recorded a couple of months ago was always likely to be revised substantially.

Labor demand remains muted

The total number of vacancies in the U.K. remains relatively steady at 712,000, its lowest level since late 2014, confirming what basically everybody knows: this is one of the toughest markets for jobseekers in decades as hiring remains depressed.

This trend is also borne out by Textkernel's online job-advertisement data, with U.K. job postings in the first half of this year running below levels seen a year earlier. All in all, hiring demand remains very weak, especially in the private sector.

Young people are bearing the brunt

While the aggregate unemployment figure has remained reasonably steady over the last year, youth unemployment continues to rise. No wonder, given that job postings for entry-level and junior roles have plummeted the most. Domestic policies like the minimum wage hikes and the increase in National Insurance contributions have led to a surge in employment costs, especially for young and part-time workers. As a result, payroll jobs for workers aged 24 and younger have fallen by about 150,000 since January 2023. Over the same period, employment among middle-aged workers has grown by about 420,000.

If you think that artificial intelligence is the culprit, you might want to reconsider. Most of the job losses in the U.K. have been concentrated in retail and hospitality, two sectors that have relatively low AI exposure. These industries — supermarkets, high street stores, local independent restaurants and cafes — offer flexible, part-time positions that require little prior experience, which makes them a natural fit for younger jobseekers. Unfortunately, those opportunities have dried up as businesses have struggled with rising labor costs amid stagnant consumer spending.

Wage growth shows further weakening

While falling wage growth together with rising inflation is obviously bad news for workers, it is a relief for the BoE. Although we can surely rule out a rate cut as the Iran conflict drags on, muted wage growth is giving monetary policymakers a reason not to hike. With the labor market as sluggish as it is, fears of a renewed wage-price spiral as seen during the post-pandemic recovery can be safely dismissed. In fact, private-sector wage growth is at its lowest since 2020.

What does this mean for recruiters?

For recruiters, little is changing for now. The job losses since the beginning of the Iran conflict are more benign than what was initially feared. At the same time, hiring remains at a multi-year low. It’s a terrible market for jobseekers, with young people hit hardest. In this environment, recruiters should anticipate that most job postings will attract a large volume of candidates, especially as AI makes it easier to apply to many roles.

The new Burnham government is expected to increase fiscal spending but must walk a tightrope, avoiding upsetting bond markets while working within the fiscal rules. At the very least, optimism seems to run higher than after Starmer was elected. Burnham’s plans for fiscal devolution, together with other significant reforms, might lift consumer and business sentiment — something the U.K. desperately needs. Hopefully, that translates into improving labor market conditions in the second half of the year.

Photo credit: Vienna Reyes

In our previous piece, we looked at whether the 2026 World Cup sparked a hiring boom in U.S. hospitality. The national data gave a clear answer: no. Employment in the sector fell in June, and economic research suggests that a muted response is exactly what we should expect from such mega-events.

But national figures can hide a lot. Even if the World Cup barely registers in a $32 trillion economy, its effects should be concentrated where the games are actually played — in the 11 U.S. host cities. If there is a hiring bump to be found, that’s where it would show up. That is why we zoom in and look at the local labor markets of the host cities. Spoiler alert: we still can’t find any meaningful effect.

Local trends: Comparing hosts with non-host cities

Weak employment growth in hospitality at the national level is by itself not definitive proof that the World Cup is not creating additional jobs: the sector could have contracted even more without the event taking place. To dig deeper, we therefore need to look at regional data. In this piece, we compare the 11 host cities with a group of similar non-host cities, our control group. While the U.S. cities where the games are played are somewhat larger than the non-host cities, this is driven by New York and Los Angeles as outliers.

Our analysis reveals that both groups display similar labor market trends in the run-up to the event — the most important assumption of this kind of event study. Rest assured that we also experimented with swapping metropolitan statistical areas (MSAs) in the control group, but that doesn’t seem to affect our results.

What the data says

Unfortunately, employment data at the MSA level is only available through May, just before the World Cup kicked off — pun intended. However, one would expect businesses to hire staff in anticipation of higher demand ahead of the event, not just during it. But our chart shows no meaningful difference in total employment between host and control cities. Even more disappointing, that is also true when just considering employment in leisure and hospitality.

Indeed job postings allow us to look at data all the way through June 26. There is no significant uptick in job advertisements before or during the event. And again, we fail to detect any difference between host and comparison cities.

With data from Lightcast, a labor market analytics firm, we can narrow the focus to job postings within hospitality. We identify four subsectors within accommodation and five within food and drinks that should have the highest exposure to the World Cup.

Alas, we need to disappoint you again. Even within these core hospitality postings, there is no divergence between the two city groups.

Additional checks: Difference-in-differences estimation

Feel free to skip this section as our statistical analysis shows the same non-result!

If you were worried that our previous analysis wasn’t quite rigorous enough, we also tested our results more formally with a regression model. Using a difference-in-differences approach, we estimate whether the gap between the two groups changed significantly in the weeks just before and after the tournament began.

For the BLS employment data, we use the months up to March 2026 as the pre-period, while April and May are included in our analysis as the treated period — although the World Cup only started in June, one might expect businesses in the host cities to increase headcount in anticipation a few weeks before kickoff. With the Lightcast data, we change the treated period to May and June. Our analysis includes time and metro fixed effects (FE) — these are statistical controls — don’t ask.

The two graphs below show that there is no statistically significant difference between the host and comparison cities. Every dot sits close to zero before and throughout the treated period, and the error bars always include the null effect. In plain terms: host cities were hiring staff at restaurants, bars, and hotels at essentially the same pace as everywhere else. Whatever the World Cup was about to do to host metros, a statistically significant surge in hospitality jobs isn’t part of the story — at least not yet.

Caveats to our analysis

The main issue is that the metropolitan employment data only goes through May, while the job postings data includes June but not July. Neither dataset covers the full length of the World Cup. We do not believe this to be a big problem since employers typically don’t hire at the last minute. Any meaningful effect should have already shown up in the run-up to the event and in the June job postings. Nevertheless, we will follow up with an extended analysis once we have all available data — in early September.

What does this mean for recruiters?

Zooming in on the host cities doesn't change the conclusion. When we compare the 11 U.S. host metros with a control group, we find no significant divergence in employment or job postings — neither in total metro employment, nor in the hospitality industries most exposed to the event. Our statistical analysis points to the same non-result: the cities with games were hiring at essentially the same pace as everywhere else.

For recruiters, this means the local labor market in host cities likely stayed closer to business as usual than the pre-tournament hype suggested. Competition for hospitality talent in New York, Los Angeles, and the nine other hosts was probably no fiercer than in comparable cities without the World Cup on their calendar. That doesn’t rule out smaller, shorter-lived effects. Some businesses near the stadiums certainly stretched their current staff with extra shifts, and a few may have added headcount for the tournament. But those adjustments are too localized and too brief to move the metropolitan numbers.

One caveat remains: the regional data only runs through the early part of the event. We’ll revisit these host cities once we have data covering the full tournament — so stay tuned!

Last but not least, do not forget to sign up for our Substack live event on August 7 in which we break down the U.S. July jobs report. Here is the link to the event.

Photo credit: Fauzan Saari

With the tournament in its final week, you might be wondering: Does the World Cup create additional jobs in the U.S.?

According to media reports, the spending boom associated with the event should be significant. With hundreds of thousands of tourists gathering, analysts expected the World Cup to increase hiring in hospitality. However, when looking at the data, we do not find any evidence of this. At the national level, hospitality employment has been stagnant in the run-up to the event and even fell in June, and hiring in the sector has been subdued. While this does not rule out more localized effects in the host cities, it is consistent with prior economic research. We’ll also provide an explanation of why that is.

The benefits of mega-events: Economic reality clashes with preconception

Mega-events like the World Cup always gather lots of attention, and rightfully so. Most people get excited about their national team doing well. Host cities receive an inflow of well-off tourists flocking to the venues, spending large sums of money on accommodation, food services, and local retailers. Mayors often showcase the virtues of their own city and local amenities.

Nevertheless, economic research is clear. Mega-events rarely deliver the large windfall gains that were promised, providing little to no discernible boost to the local economy and job market. In many cases, they are even money-losing propositions, with the cities in question spending a fortune on infrastructure and amenities that are not being used subsequently — the World Cups in South Africa and Brazil are good examples of such waste. While this problem is less severe in advanced economies where the local infrastructure already exists, research finds that the multipliers from such spending are small. There is some evidence that mega-events can boost consumer sentiment, especially when the national team performs well (France in 1998 and Germany in 2006 come to mind), but typically those effects fade quickly.

Setting the scene: Hospitality employment fell

As the World Cup is held between June 11 and July 19, analysts expected that the event would boost leisure and hospitality employment. Alas, the June jobs report disappointed. Contrary to expectations, the sector recorded job losses exceeding 61,000.

If you were thinking that this might simply be a monthly data fluke in the official statistics, I’ll have to disappoint you. Private-sector sources like ADP and Revelio both confirm the weak figures. Revelio’s seasonally adjusted employment figure shows job losses in May and stagnation in June, while ADP’s private-sector payroll data shows positive but very weak job growth for those two months (keep in mind that leisure and hospitality is a very cyclical sector, so the non-seasonal data looks different).

Hiring remains weak

Moreover, worker turnover in the hospitality sector is also slightly weaker than last year. Again, this is backed up by both public and private data sources. The Bureau of Labor Statistics' (BLS) monthly hiring and quits rates run through May, while Revelio's hiring and attrition rates already have June data.

While the two series are not strictly comparable — the BLS measures are monthly while Revelio’s rates are annualized — comparing the trend is still valid. And neither of them is showing a World Cup effect: quite the opposite. According to both data sources, worker churn in hospitality is currently subdued compared with last year, with fewer employers hiring and therefore fewer workers leaving one job for another.

Why the World Cup effect is so small

There are several reasons why mega-events like the current World Cup only have a limited impact on the economy.

1. Substitution: Consumers do not have infinite pockets. When fans decide to spend more on accommodation, eating and drinking out, or fan merchandise, they will cut back on other expenditures. This is precisely why these spending booms — if they even happen — tend to be short-lived. Consumers become thriftier again once the show is over.

2. Crowding out: As much as we love the World Cup, not everybody in the community will be pleased by thousands of visiting soccer fans descending on the local pub and restaurant scene — you have my sympathies! While such mega-events attract many tourists, they might crowd out locals at the same time.

3. Extensive vs. intensive employment margin: These two terms describe job growth vs. changes in working hours. Instead of hiring additional people (extensive margin), it is more plausible that many local businesses simply adjust the shifts of their current staff to manage a spike in demand (intensive margin). The latter is often significantly cheaper than increasing headcount temporarily, which is more of a last resort.

4. The size of the economy: Most of us tend to underestimate how large the U.S. economy actually is: $32 trillion, expanding by $1.6 trillion this year (assuming 5% nominal growth). According to estimates, the event might attract some 700,000 net tourists from abroad. If the typical visitor spends some $5,000, then this only represents $3.5 billion in additional spending. While this is not a small figure, it’s not big enough to have any meaningful impact on the U.S. economy: it’s about 2 in 1,000 of this year’s GDP growth. And the same logic applies at the MSA level. New York’s and Los Angeles’ economies are about $2.4 and $1.4 trillion, respectively.

5. Monetary offset: This is simply economists’ lingo for the Federal Reserve killing the boom. If an economy-wide spending spree were to occur, policymakers would have to hike interest rates, since inflation is still above target. Growth and job creation from higher consumer spending would be offset by contraction in other sectors more sensitive to the interest-rate hikes.

What does this mean for recruiters?

The aggregate job numbers do not show any meaningful effect of the World Cup. Hospitality employment fell in June and hiring remained sluggish relative to last year. While this may be surprising, the result is in line with economic research. Big sports events tend to have little impact on economic production and job creation. For recruiters, this means less competition for talent in the sector than widely anticipated.

While the national hiring boom didn’t materialize, it is, of course, entirely possible that the World Cup’s economic effects are concentrated in the U.S. host cities. In our follow-up piece, we will therefore examine closely whether any employment effects show up at the metropolitan level in the cities where the games are played. Stay tuned!

Photo credit: Alexander Grey

Well, maybe you weren’t worried about the falling labor share. But some people are — and they probably shouldn’t be. I’ll explain why.

Wage angst

There is no doubt that the emergence of AI has created a lot of anxiety among workers. And for good reason: the technology will certainly change the labor market quite dramatically in the decade to come. While we do not believe that a doomsday scenario involving mass unemployment and collapsing economic output is realistic, AI will create winners and losers as it becomes more deeply integrated into the production process. Routine white-collar workers are at risk of displacement, while AI knowledge workers stand to gain.

Alongside fears of technological unemployment, concern about the collapsing labor share — the portion of GDP that goes to worker compensation — has been circulating. As AI displaces workers and boosts profits, wages are being squeezed, the argument goes.

While the raw data seems to support this story, it’s largely a methodological issue. Once the necessary adjustments are made, the share of economy-wide income paid out to workers has remained more stable.

Profits up, wages down?

On the surface, it certainly looks like workers are losing out. The measure of the labor share from the Bureau of Economic Analysis (BEA) shows that more than 60% of GDP accrued to workers a few decades ago. More recently, that figure has dropped below 54%. Meanwhile, corporate profits have risen to an all-time high of 14% of GDP, about 4 percentage points above their long-term average. Thus, the popular narrative is that profits are eating into wages.

However, this is a gross simplification (read on and you might catch the pun). When the necessary adjustments are made, the data shows that workers are not significantly worse off.

What are imputations and why are they part of GDP?

Gross Domestic Product (GDP) measures the total value of all goods and services produced in the economy over the course of a year.

However, each year, capital gets used up: machines wear out, software becomes obsolete, buildings deteriorate. As a result, a portion of total production must be diverted to replace worn-out capital (this is called depreciation). It should be clear that this money goes neither to capital owners as profits nor to workers in the form of wages. It simply keeps the capital stock in the economy intact.

What is interesting is that depreciation has markedly accelerated in recent decades, rising from about 12% of GDP in the 1960s to more than 16% today.

Part of the reason lies in today’s internet economy. Equipment such as computers, smartphones, and software becomes obsolete significantly faster than traditional manufacturing machinery.

Another factor we need to account for is imputed rent — the hypothetical rent a homeowner would pay to themselves.

Why do economists include this “made-up income” in GDP?

Well, think of two economies: a nation of renters — Germany — and a nation of homeowners — the United States. Now imagine that in Germany, I live in your house while you live in mine, and we each pay rent to the other. This rental income is counted as part of Germany’s GDP. But in the U.S., we live in our own houses, so no rent is actually paid. As a result, Germany’s GDP would appear artificially higher relative to the U.S., even if the underlying level of economic productivity were the same — unless we include imputed rent in the U.S. GDP figure!

Given that the housing market has become more expensive over time, imputed rent has risen from about 5% of GDP in the 1950s to more than 8% today.

Both depreciation and imputed rent have surged, but this portion of economic output is neither wage nor capital income. We therefore need to deduct them from GDP to get a more accurate picture of whether workers are truly losing out. And that’s not all: we also need to account for proprietors’ income.

What is proprietors’ income?

This is money earned by people who own and operate unincorporated businesses — sole proprietorships, partnerships, and the like. It therefore measures income of the self-employed.

In the 1950s, 40% of proprietors’ income came from agriculture, but that has fallen to under 4% in recent years. Today, we are mostly talking about gig workers (think Uber), freelancers (professionals like consultants), self-employed medical practices (dentists), and family-owned businesses.

What’s problematic about this measure is that we cannot know for sure how much of the income is derived from labor vs. capital. Think about a self-employed dentist making $300,000 a year. How much of the earnings are derived from skill, and how much comes from the equipment and facilities used in the practice? Hard to say!

Historically, economists have assumed that the wage-capital split is roughly 60-40. However, that might not be quite right anymore since self-employment has become more “labor-intensive” over time. While farms are capital-intensive (lots of machinery), a self-employed consultant may rely on little more than a laptop and a phone.

I have therefore used three assumptions for the labor share of proprietors’ income:

1. 60%

2. 75%

3. A drifting share (starting at 60% in the 1950s, and increasing by 2 percentage points each decade, slightly exceeding 75% today)

Given how the nature of self-employment has changed over time, the last scenario strikes me as the most plausible. The data shows that the labor component of self-employment has increased by more than 1 percentage point in recent decades, from about 4% in the 90s to more than 5% today.

Focus on the net labor share

Given all the considerations mentioned above, we need to focus on the net labor share — the portion of economy-wide income that goes to wages when deducting depreciation and imputed rent from GDP:

The dark blue line in the graph below shows how the net labor share has evolved over time. It is higher than in the 1950s and 1960s, and slightly lower than in the 2000s and 2010s. The 1.5 percentage point decline over the last decade is real, but significantly lower than what doomsayers would suggest!

Households are also capital owners

Another thing worth mentioning is that capital income does not just consist of corporate profits. While the gains have been unequally distributed, workers have been participating in the asset price boom of recent decades. This is true not just true housing but also for stocks. According to data from Empower — a U.S. retirement plan administrator with roughly 19 million participants — the median 401(k) for workers in their 50s is about $250,000, while the average is close to $630,000. While contributing members skew toward higher-income earners, the broader trend still holds: many workers have benefited from rising stock markets. This means the typical worker is not just a wage earner but also a capital owner. Moreover, new research shows that gains from stock-based compensation are not captured in standard labor income measures either.

Summing up

The gross labor share is an inadequate measure to assess whether workers are being squeezed. The main reason is that imputations — depreciation and imputed rent — make up a much bigger slice of GDP today than they used to.

While these “non-existent cash flows” represent real economic activity, they are not part of either labor or capital income. To get a sense of whether workers are losing out relative to capital owners, we need to add proprietors’ wage income and deduct the imputations from GDP. This measure — the net labor share — has fallen by roughly 1.5 to 3 percentage points since 2010.

So, while it is true that the share of income going to workers has declined slightly, the overall narrative has been exaggerated by a misleading interpretation of the data!

Photo credit: K. Mitch Hodge

While some people are still in denial, there is no doubt that Brexit has done significant damage to the U.K. economy. This is backed up by research from the Bank of England, OECD, academia, the financial sector, and the U.K. government. Precise estimates vary, but most studies show that Britain’s economy is about 2% to 6% smaller. The average British household is somewhere between £2,000 and £4,000 worse off because of Brexit.

But one region is bucking the trend! Northern Ireland (NI) is in a privileged position because it is the only place in the world that has dual market access. Local businesses can sell goods tariff-free to the EU and the U.K. Thanks to this unique status, NI’s economy has outperformed Great Britain in terms of GDP growth, salary gains, and job creation.

The adverse consequences of Brexit: a recap

A short summary of why Brexit was so harmful — feel free to skip this section if it’s too depressing.

One immediate effect of Brexit was a significant depreciation of the pound, causing higher inflation in the U.K., harming businesses and households alike. Brexit meant that trade with the EU became significantly more expensive and burdensome due to red tape. This is particularly problematic for small British businesses, many of which have cut back or stopped exporting to the EU altogether. And keep in mind that EU member states account for about 50% of British goods trade.

Another effect of leaving the common market is that the U.K. suddenly became a less attractive place to invest in. A standard result in economics is that market size matters. With the EU’s economy being five times larger than the U.K.’s, why would international companies invest in the smaller market only to face additional hurdles when moving products abroad? Finally, leaving the EU meant that the supply of workers from EU member states has dried up. Recruiting from Europe has become significantly more expensive and challenging due to visa restrictions. This is true for skilled workers in the white-collar space (tech, finance, professional business services), and even more so in the blue-collar space (engineering, skilled trades, construction workers). In recent years, more EU citizens have left than moved to the U.K. This reduction in the skilled workforce is problematic from a fiscal point of view. Research shows that EU workers are, on average, significant net contributors over their lifetimes.

All in all, Brexit was quite a terrible idea and none of the advertised upsides have been realized. “Singapore-on-Thames” was always a little bit of a pipe dream.

The Northern Irish exception

Northern Ireland occupies a unique post-Brexit position: while the U.K. left the EU, NI effectively remains inside the single market for goods. Thanks to the Windsor Framework, a hard border between Great Britain (GB) and Northern Ireland was avoided. To reduce friction, a “green lane” with minimal checks for items passing from GB to NI was designed for goods that stay in NI without moving into the EU. The end result is a hybrid arrangement found nowhere else: NI businesses gain dual access to both markets.

Local producers have benefited tremendously from the fact that they are the only ones that can ship tariff-free goods into the EU and U.K. alike — serving two markets of 450 and 70 million customers, respectively. This privilege has given the economy a boost. While the U.K. has grown by less than 6% in real terms since Q1 2020, NI has expanded by twice that much.

Breaking down economic activity by sector reveals some interesting facts. Unlike in Great Britain, where industrial production has stagnated, production in NI is up by about 10%. Manufacturing has done surprisingly well following Brexit, with some local businesses explicitly referencing NI’s unique position as an engine for job growth. Even more surprising, construction is up by more than 20%. Following years of inadequate housing supply, more investment has started to pour into housing and infrastructure.

What about the job market?

Thanks to its strong economic performance, Northern Ireland has by far the strongest labor market in the U.K., the only region creating jobs recently. With the severe slowdown of the economy and labor market — a result of global shocks (energy prices) and domestic policy decisions (tax and minimum wage hikes) — some 200,000 payroll jobs have been lost in the U.K. since early 2024. This is a decline of about 0.7% compared with NI’s 2.5% gain.

Since 2020, NI has added about 70,000 payroll jobs, an impressive number in a labor market of a little over 800,000 workers. Belfast alone created some 12,000 jobs — a gain of more than 9% — making it one of the fastest-growing cities in the U.K.

England’s unemployment has gradually increased from about 4% to 5% in recent years, whereas NI’s unemployment rate declined from about 3% to 1.8%. Scotland and Wales have also seen a rise, though less pronounced.

However, one reason NI’s unemployment rate is so incredibly low is elevated economic inactivity. While 20% of individuals between the ages of 16 and 64 are classified as inactive in England, the Northern Irish figure stands at about 26%. Inactivity has been a long-standing structural issue in NI, with many individuals depending on sickness or other welfare benefits. The fact that the good job market has been unable to pull in discouraged workers should be a big concern for policymakers. It proves that local barriers to entry remain a challenge for sidelined individuals such as a lack of childcare, healthcare or disability issues, limited access to jobs further away, or other factors.

Job postings and wage growth show elevated demand

Unlike the rest of the U.K., hiring demand remains elevated. Data from NIjobs, a regional job board in — you guessed correctly — Northern Ireland, shows that total job postings remain more than 30% above pre-pandemic levels. More encouraging, job postings have risen since late 2024, the opposite of what we’re seeing in the U.K.

As a result of the tighter labor market, wages in NI have risen at a significantly faster pace than in the U.K. between mid-2024 and early 2026, with growth peaking at around 8.5% last year. In recent months, though, wage pressures have converged back to the U.K. average.

What does this mean for recruiters?

Northern Ireland’s economy has boomed because local businesses have dual access to both the EU and U.K. markets. This special status has helped attract investment from abroad. Job growth remains positive and hiring demand elevated. Even global businesses are increasingly looking at Belfast as a place to invest inv, with strong economic growth in the Republic of Ireland creating additional spillover effects.

But all of this is also creating a challenge for recruiters. NI’s labor market is the hottest of all U.K. regions. And even with the unemployment rate as low as it is, pulling inactive individuals into the labor market remains a challenge. Appcast’s benchmark data shows that cost-per-application in NI is higher than elsewhere in the U.K., precisely because attracting candidates is more challenging. Do not expect this to change anytime soon as NI’s unique Brexit status is providing the region with a continued edge.

Photo credit: Donnie Rosie

After a series of several better-than-expected jobs reports over the spring months, job market growth in June hit a wall, adding a modest 57,000 jobs — concentrated in healthcare again. Downward revisions to the April and May reports subtracted 74,000 net jobs, dragging down three-month non-farm payroll growth to 111,000. That’s still a healthy figure, but a step below the recent pace of hiring.

On a positive note, the unemployment rate fell to 4.2% last month after steadily rising from 2024 to 2025. That trend has completely reversed at this point, with little sign of upward pressure on the joblessness rate.

Industry Trends

Healthcare and social assistance remained the labor market’s primary engine in June, adding 47,000 jobs, almost exactly in line with its long-run trend.

Outside of healthcare, professional and business services were the only major sources of job growth. That’s an encouraging sign for a sector that has struggled over the past few years amid higher interest rates and rapid advances in AI. Most other industries were little changed or posted modest declines.

The biggest surprise in June was the loss of 61,000 jobs in leisure and hospitality. The sector had posted solid gains in recent months, leading some analysts to attribute that strength to increased tourism surrounding the World Cup. With June’s decline, however, employment in the industry has barely increased since the start of the year.

I was skeptical of the World Cup explanation from the May jobs report. Looking at the unadjusted data, year-over-year employment growth in leisure and hospitality was largely unchanged from prior months, suggesting the tournament had little measurable impact on hiring.

Labor Force Trends

The other large negative surprise in this report was the sharp drop in the prime-age labor force participation rate, which declined by 0.6 percentage points in a single month. In fact, excluding the large drop during the peak of the pandemic, this was the single largest decline in the series during the 21^st century.

Most of the decline was concentrated among the 25–34-year-old group, so the shift may just be noise, but it is a large enough drop to warrant further inspection.

This is a clear warning sign that, despite stronger job growth in recent months, there are underlying issues with the labor force that warrant careful watching from the Fed, as their attention has fully shifted to inflation (rightfully so).

Big picture: the labor market is no longer a meaningful source of inflationary pressure. Wage growth for non-managerial workers has continued to cool, slowing to 3.4% year over year, and the latest Fed communications make clear that inflation remains the primary concern.

At the same time, policymakers shouldn’t lose sight of cracks in the labor market. Unemployment remains low at 4.2%, and payroll growth is still running above the pace needed to keep up with population growth, but hiring is still concentrated in healthcare while labor force participation has weakened. The labor market remains healthy, but it no longer looks as broad-based as it did the past several months.

What does this mean for recruiters?

For those recruiting in healthcare, the pace of hiring remains strong. The industry that surprised us most last month was hospitality: everything from restaurants, bars to hotels. The surge of international fans for the World Cup was thought to be a driver of growth in the sector, but it now appears that wasn’t the case. Construction hiring is the second-largest source of job growth in the labor market — powered by the large AI data center buildup requiring HVAC and skilled trades labor.

Last but not least: here is a quick reminder that the Recruitonomics team is hosting a Substack live event on Aug. 7 to break down the next U.S. jobs report. You can register via this link.

First things first! The Recruitonomics team is going to host a Substack live event on Aug. 7 to break down the U.S. July jobs report, released earlier that morning. Here is the link to the event. Self-recommending!

And below, you can find a roundup of the articles we published in June. Keep reading for data releases coming up this month and other interesting recruitment and labor market insights.

Upcoming Economic Data Releases and Events

• July 2: US Employment Situation Report

• July 14: US CPI

• July 16: UK GDP (monthly estimate, May 2026)

• July 17: Eurozone CPI (final June reading)

• July 21: UK Labour Market Overview

• July 22: UK CPI

• July 30: US GDP statistics (advance estimate, Q2 2026)

• July 30: Eurozone GDP (preliminary flash, Q2 2026)

In recent news:

Julius Probst, PhD

The UK: a nation in flux

The U.K. right now is very much a country in flux. There is currently no acting James Bond, Doctor Who, or prime minister for that matter. Yes, I know. I’m not the first one to make this joke.

Well, at least the political vacuum should be resolved by the end of summer. Andy Burnham — former mayor of Greater Manchester — managed to score a seat in Parliament by decisively winning a by-election in June. This positioned him to launch a leadership challenge against the battered prime minister. Starmer, in anticipation of what was coming, decided to resign on his own. He was very much a lame duck at the end, with a government in paralysis. Despite a large majority in Parliament, Starmer could not push through meaningful change like welfare reform due to opposition in his own ranks. Burnham is widely expected to win the Labour leadership contest to become the next U.K. prime minister by August.

While we do not know many of his policy ideas yet, there is one thing that is certain: Burnham is quite serious about devolution — giving the U.K.’s local authorities greater control over tax and spending decisions, with a focus on infrastructure investment. Economists generally agree that economic underperformance since the Global Financial Crisis is related to insufficient public investment, with the U.K. spending significantly less than the average OECD economy.

Another problem is that the British tax system is highly centralized. Local authorities in the U.K. collect a tiny fraction of tax revenue relative to what is standard across advanced economies. Consequently, big infrastructure projects like the Elizabeth line are typically geared toward London, while the U.K.’s other large metropolitan areas like Birmingham and Manchester are not getting a big enough slice of the pie. This is problematic for two reasons. First, the U.K. has fallen behind Germany and France largely because most cities outside the “Golden Triangle” (the London-Cambridge-Oxford arc) have extremely low levels of worker productivity. This is a major reason why living standards remain low in most other regions. Second, due to the collapse in London's housing construction, a significant share of employment growth in since 2020 has happened in lower-productivity regions, with Greater Manchester and Liverpool taking the lead. While this is obviously good news, infrastructure spending needs to follow to make these cities more productive.

If the U.K. wants to be more serious about growing the rest of the country, devolution of power might be the way to do it. Previous governments have approached the topic halfheartedly. In his speech on Monday, Burnham made it clear that he wants to go all the way. It remains to be seen, though, what policies his government will implement to achieve this goal.

Europe’s economies are increasingly suffering from climate change

While the last heat wave is barely over, Europe needs to prepare for another one coming our way in about a week’s time. June brought blistering temperatures to Europe — reaching 36°C in the U.K., 40°C in Germany, and 41°C in France (97°F, 104°F, and 106°F for our American readers). With heat records broken frequently since the beginning of this century, it is abundantly clear that climate change is playing a role. The current global temperature now exceeds its long-term average by more than 1°C.

Europe specifically is heating up faster than other regions, and the continent is not prepared. Many houses in Northern Europe do not have air conditioning (AC) because historically it simply wasn’t needed. The same is true for public facilities — schools, retirement homes, and even hospitals. Buses and trains are not running since they also have insufficient climate control and cannot cope with the heat.

The damage from climate change is increasingly weighing on economic growth and, by extension, the llabor market. Countries like France are recording excess deaths in the thousands because of the heat wave. The hot summers are also lowering agricultural production, driving up food prices. This leaves households with less spending power for other items. Think lower hiring demand in hospitality and retail.

The Rhine River — one of Europe’s largest waterways — is used for shipping, with manufacturing plants in Germany relying on it to get supplies. In recent years, frequent droughts have led to falling water levels, leaving barges able to carry only a fraction of their regular load. This supply-chain disruption is hitting Germany’s industrial sector again this year, with knock-on effects for recruitment. And economic research shows that worker productivity declines for every degree above 20°C. Working from home becomes challenging without AC. As the economic costs of adapting to climate change rise each year, Europe had better act quickly.

Photo credit: Photoholgic

Australia has become one of the richest advanced economies in the world thanks to a combination of luck, good economic policies, and abundant resources. One big factor driving the growth story was China’s rapid economic development, which created a commodity supercycle during the 1990s and early 2000s. As a mining superpower, Australia benefited significantly from surging commodity prices at the time. Domestic investment — propelled by the local mining boom — was a key engine of the economic expansion between 1995 and 2012, contributing about 0.35 percentage points to an average quarterly growth rate of 0.83% (approximately 40%). But as the commodity supercycle ran its course after the Global Financial Crisis, so did the mining boom. Domestic investment fell in inflation-adjusted terms between 2012 and 2019. However, following the pandemic, capital expenditures have picked up significantly, once again contributing about 40% to GDP growth. This time, though, it’s not driven by mining but by AI. Like the U.S., Australia is abundant in land and cheap energy, making it well-placed to be at the forefront of the global data center boom.

The data center boom Down Under

Research from the Climate Council shows to what extent Australia’s data center construction boom is ramping up, with most of the activity in New South Wales and Victoria. The two states share about 90 operational data centers between them, and another 74 in the pipeline.

Australia’s industry data indicates that the investment surge in the information and communications technology (ICT) sector is substantial. A completed data center incorporates both types of assets — structures and equipment. Relative to 2019, investment in buildings and structures in the ICT sector has roughly doubled, while capital expenditure in equipment has increased more than tenfold — these numbers are already adjusted for inflation.

Taken together, this already represents more than 15% of economy-wide investment today. Westpac estimates that capital expenditures in data centers could exceed A$150 billion over the next decade, about 5.5% of annual GDP. If realized, this would equal and potentially even exceed the height of the mining boom. Much like the dot-com infrastructure rollout in the 1990s, this suggests that AI might truly be the next General Purpose Technology. Such a surge in capital spending will provide a meaningful boost to economic growth for many years, with positive knock-on effects for household incomes.

What is the implication for the labor market?

Is the data center boom already influencing today’s labor market, you might wonder?

And the answer is yes! Even as Australia’s labor market remains significantly tighter than that of most other advanced economies, vacancies have fallen and the unemployment rate has increased from about 4% to 4.5% over the last two years. The internet vacancy index released by Jobs and Skills Australia — a government body — is down by a little more than 1% since January 2025. That is very similar to data from SEEK — Australia’s largest job board — which shows that total job postings are down by about 3.5% since then.

However, the decline in vacancies is not broad-based. While some white-collar occupations continue to trend downward, the story is very different for certain blue-collar jobs. In particular, the occupations that would benefit the most from increased construction spending on data centers and related infrastructure are showing a significant increase in hiring demand. Job postings for trades workers with the relevant skills have significantly outperformed the overall market: Electrotechnology and telecommunications trades are up by about 10%, and so are postings for construction trades and construction workers. Machinery operators and drivers are up by almost 12%.

SEEK created its own data center construction job ads index, which shows an even stronger rise than the select occupations highlighted above. Relative to 2019, job ads are up by more than 60%, with most of the surge happening since early 2025.

What is noteworthy is that postings for engineering, ICT, and science technicians are only up by 5%. For now, the AI boom is very much confined to infrastructure-related jobs, similar to what the U.S. economy is experiencing. Staffing needs for operational IT headcount — the people who actually operate and maintain the live facility once it’s switched on — come later and might be relatively small compared to the labor demand required for the current infrastructure boom.

The divergence in hiring demand between blue-collar and white-collar occupations is also starting to have an impact on compensation trends. SEEK’s advertised salary data shows an acceleration in wage growth for trades workers and even more so for construction labor, both outperforming the overall market recently.

Is data center construction creating local labor market booms?

The significant surge in job ads related to data center construction is also creating regional hiring booms, especially in smaller labor markets. The chart below breaks down SEEK’s data center index by state. Two things are striking: First, the boom is happening nationwide with all states up quite significantly. Second, some smaller labor markets are displaying higher volatility, which makes sense. Total employment in the Northern Territory is about 145,000. The construction start (or completion) of one or several data centers can make a big difference to local hiring demand.

What does this mean for recruiters?

Like the U.S., Australia is well-placed to benefit from the global AI and data center boom thanks to its abundant land and cheap energy. The biggest constraint is the scarcity of skilled workers. Unlike other advanced economies, Australia’s labor market remains relatively tight. The country has historically relied on immigration to fill the gap. However, the global shift toward populism has also reached Australia. Even if the economy requires more workers, the political will for higher immigration might not necessarily exist. Meanwhile, the data center boom is putting additional pressure on the labor market. We are already seeing a surge in demand for various blue-collar roles — construction and specialized trades workers — benefiting from the spike in infrastructure spending. That pressure is also affecting compensation trends, with wage growth picking up for infrastructure-related occupations. Localized labor markets will remain extremely tight as long as the data center boom continues. For recruiters, this means that hiring for the roles highlighted above will remain a challenge, especially in local hot spots, and compensation demands will keep rising. For now, we don’t have any evidence that Australia’s data center boom is running out of steam any time soon.

Many thanks to Blair Chapman, chief economist at SEEK, for providing data for this piece.

Unemployment steady, payroll job losses revised down

The unemployment rate in the U.K. now stands at 4.9%, which is even a tad lower than at the end of 2025. Keep in mind though that this figure is based on the somewhat unreliable household survey. Nevertheless, the fact that unemployment has remained steady since the fall of 2025 is good news. It shows that the labor market has not weakened as much as we previously feared at the beginning of this year.

There was also some good news on the payroll employment front. As expected, April’s job losses were effectively halved by subsequent data revisions — the preliminary number showing a decline of 100,000 was changed to a “mere” 52,000 jobs lost. Meanwhile, the U.K. added about 1,700 payroll jobs in May. While this is rather insignificant, at least it’s positive.

Sectoral employment trends continue unabated. Retail and hospitality are the two industries that have suffered the most in recent years, recording job losses of 125,000 and 102,000, respectively, since January 2024. Both sectors have suffered from Labour’s policies — the National Insurance contribution increase and minimum wage hikes — while also being exposed to the price shock in recent months. Healthcare continues to be the only sector showing significant employment gains, up by almost 150,000 over the same period. Transportation seems to be in reasonable shape with employment remaining steady for now, defying our more pessimistic assessment. This is somewhat surprising since the sector is highly reliant on energy.

The total number of vacancies in the U.K. remains extremely low across all sectors, standing at just over 700,000 — the last time vacancies were so depressed outside of the pandemic was in 2014. Because labor demand is so sluggish, workers are finding it extremely difficult to change roles. Job-to-job transitions have declined substantially and are much lower in the first quarter compared with the same period last year.

Is self-employment acting as a stabilizer for economic activity?

During the pandemic, self-employment in the U.K. plummeted from about 5 million in early 2020 to a mere 4.2 million in 2021. One piece of good news is that self-employment has shown signs of recovery since 2025 with recent numbers showing an increase to about 4.6 million. While we probably need more data points to ascertain whether this trend will continue, it is starting to look like self-employment is acting as a cushion for the weak labor market. With payroll employment down on the year, workers are taking on gig and freelance jobs to supplement or even replace the income they might have lost because of layoffs. This shift in the labor market can therefore act as a stabilizer for the economy, smoothing household consumption, as more workers are choosing self-employment over becoming unemployed. It is plausible that recent advances in AI are supporting this trend by reducing the barriers to self-employment: AI tools can help with bookkeeping, invoicing, contract automation, marketing, building a professional website, and much more. The possibilities are almost endless, lowering the cost of going solo.

Wage growth and inflation are heading in the right direction

One of the biggest data surprises this week was the slight decline in the U.K. inflation rate to 2.9%. Despite the oil shock, underlying inflation in the economy has not increased in recent months. The highly regulated domestic energy market is one reason for this. But price pressures across all sectors have remained remarkably subdued for now. Meanwhile, private-sector wage growth is rising at a rate of about 4%, a decline from last year, allowing monetary policymakers to keep interest rates steady

Following yesterday’s monetary policy decision, financial markets are only expecting one interest rate hike this year, with a small chance of a second one. Even as there are some inflationary pressures in the pipeline due to the energy price shock, the BoE is currently playing for time with the intent of not further weakening the economy and labor market any further. Although growth was strong at the beginning of the year, underlying momentum points toward stagnation right now.

What does this mean for recruiters?

Some of the recent economic data in the U.K. has positively surprised. Inflation remains lower than expected, while wage growth continues to normalize. This has allowed the BoE to keep interest rates steady, which is good news as additional rate hikes would further dampen economic activity. April’s payroll employment losses have been revised down substantially, while the May numbers show a marginal increase. But the economy is not out of the woods yet. Keep in mind that a lot of data like the unemployment rate is backward-looking. Even with the Iran conflict ending, the economic effect of the oil price shock is not fully behind us yet. The inflationary legacy, including stagnant real wages, will drag on until the end of the year.

For recruiters, this means that employers continue to be quite cautious about adding headcount, especially since global economic uncertainty remains highly elevated. The vacancy data shows that labor demand in the U.K. is extremely weak. Even though this means that recruiters can draw from a larger pool of applicants, the combination of AI and a weak labor market is creating an application tsunami for many job postings. Even as the labor market has moved on from the candidate shortage that companies experienced post-pandemic, hiring has not exactly gotten easier. Recruiters simply face different challenges than before.

Photo credit: Markus Winkler

The inflationary surge following the pandemic was extremely painful for workers. Wages failed to keep up with prices when inflation rose to nearly 9% in the U.S. and more than 10% in Europe in 2022. It took the average employee several years to gain back their lost purchasing power. Due to the oil shock this year, inflation has already surged above wage growth again within a couple months. Even with a quick resolution of the conflict, the inflationary legacy of the war will remain with us for the rest of the year, if not longer.

Workers’ confidence in the job market is already at a record low as fears of AI displacement have spread, while the economy remains stuck in a low-hire, low-fire equilibrium. Yet another cost-of-living crisis is exacerbating worker discontent around the world. Unlike a few years ago when wage demands soared, workers’ bargaining power has been reduced by today’s low-churn labor market. If the oil shock drags out, wage growth might run below inflation until early 2027.

US: Two lost years of real wage growth

Inflation in the U.S. surged during the post-pandemic economic recovery to just over 8%. This was due to a combination of several factors: a very hot economy and labor market together with supply chain disruption and an energy crisis caused by the war in Ukraine. The inflation rate was well above nominal wage growth throughout 2021 and 2022, meaning that workers were losing ground at the time. From 2023 onward, inflation fell fast enough for real wages to recover and start growing again.

But all of that changed with the conflict in Iran, which has created another global energy price shock. With U.S. consumer prices quickly accelerating from about 2.4% in February to 4.2% in May, real wages have already fallen by more than 1% within months. Most forecasts anticipate that the U.S. Consumer Price Index (CPI) will remain just under 4% in the third quarter before slowly falling back to 3.5% in early 2027. If nominal wages continue to grow at their current rate of 3.5% — assuming no further labor market slowdown — American workers will see their paychecks erode until next year. Under that scenario, real wages in March 2027 will not be higher than in July 2025, meaning more than 18 months of stagnant pay in real terms.

UK: Real wages still above water but plunging fast

Nominal wage growth in the U.K. has proven to be remarkably sticky even as the labor market went from hot in 2022 to ice-cold more recently. Supply-side imbalances caused by Brexit, the rising minimum wage, and elevated wage demands are potential explanations. Either way, nominal wage growth has only slowed to about 4% this year, while inflation has been running at a lower rate since 2023. Consequently, workers in Britain have been able to claw back some of the purchasing power they lost during the inflationary spike a few years ago.

But inflation is now heading toward 4% in the U.K. as well. Meanwhile, the Bank of England expects wage growth to fall below 3.5% due to the sluggish labor market. As a result, real wages are expected to fall by more than 1% relative to where they were before the oil shock. A reasonable projection is that they won’t recover until March 2027, implying more than a year of purchasing power stagnation for the average British worker.

Eurozone: Real wages barely higher than in 2019

The decline in real wages in the Eurozone will most likely be somewhat smaller as inflation remains more contained than in the U.K. or U.S. Nominal wages are expected to grow at a rate of a little over 3%, while inflation will rise to 3.5% later this year. Nevertheless, real wages in March 2027 will still be slightly lower than they were in fourth quarter of last year. What’s even more concerning is that real wages a year from now will barely be higher than in early 2022, implying four years of stagnation. The reason, of course, is that it took about three years to recover from the massive stagflationary shock caused by the war in Ukraine.

Some Eurozone economies are doing better than others

While most Eurozone economies will see almost no real wage gains in the year to come, some countries are weathering the shock better than others. Economic growth in the Baltics and parts of Southern Europe — Croatia and Slovenia — has been quite spectacular in recent years, far exceeding the Eurozone’s average. As a result, nominal wage growth remains extremely high, well above 6%. Even with inflation approaching 4%, real wages continue to perform strongly in those countries, growing at a rate of 2% or 3% this year. In large Eurozone economies, on the other hand, workers will see their pay barely keep up with inflation.

What does this mean for recruiters?

While the memory of the cost-of-living crisis from a couple of years ago is still fresh, advanced economies are now facing another stagflationary shock — meaning higher inflation and lower growth. Even with a quick end to the conflict, inflation is expected to remain higher for longer. Real wages in most advanced economies are already falling, and it will take another year for them to recover to pre-crisis levels. Even as workers are bearing the brunt of the burden, it’s also bad news for companies. In the current economic environment, many employers might fail to adjust wages in line with rising living costs. With worker discontent inevitably rising, productivity will suffer. But bad morale is not the only thing that company executives will have to worry about. Talent attraction might also become more challenging. With elevated economic uncertainty and rising inflation, workers will be more hesitant to switch jobs unless there is a reasonable pay uplift relative to what they currently earn. Companies face a bind: margins are squeezed by the same inflation hitting their staff, yet persuading candidates to leave their existing roles now costs noticeably more than it did two years ago. For recruiters, that means a year of difficult conversations with both candidates and hiring managers, with neither side likely to budge easily on pay.

Photo credit: Marcus Lenk

If you have followed our content on Recruitonomics for a while, you have probably heard about the low-churn job market. American workers have seen a declining number of job opportunities in recent years due to the “low-hire, low-fire” economy. The total number of annual hires fell from a peak of more than 79 million in 2022 to less than 63 million recently.

But the labor market is not the only important part of the U.S. economy that is frozen. Residential real estate has seen a similar decline in churn. In this piece, I will suggest that the two phenomena are related and, in fact, reinforce each other: the static housing market is feeding back into the labor market, creating even more friction for workers. This has implications for the dynamism of the U.S. economy and long-run growth.

Housing transactions have plummeted

Sales data from Redfin suggests that the U.S. housing market is currently in crisis mode. Following a brief frenzy during the pandemic, when real estate benefited from cheap credit, the number of housing transactions fell sharply after the rise in inflation and surging mortgage rates in 2022. Since then, sales have hovered under 300,000 per month, significantly below pre-pandemic levels — the last time the housing market was this depressed was in 2013.

High mortgage rates are creating a lock-in effect

One obvious reason for the sluggishness of the housing market is high mortgage rates. Even as house prices have remained surprisingly robust, sales have plummeted. The reason: the post-pandemic inflation shock has led to a doubling of mortgage rates, from a little over 3% in 2020 to about 6.5% more recently. Due to that surge, homeownership is increasingly out of reach for many households because mortgage payments have ballooned.

Since many homeowners benefit from lower interest rates they locked in before or during the pandemic, the economics of moving have become highly unattractive: going from 3% mortgage to almost 7% can double the monthly payment for a similarly priced home.

Geographic mobility has been declining for decades

While today’s housing unaffordability is certainly a factor, geographic mobility within the U.S. has been on a downward trend for decades. The Census Bureau has tracked the movement of Americans since 1948. While in the 1950s about 20% of Americans moved each year, that number has more than halved to under 8% in 2023.

What’s interesting is that most moves happen over short distances. Historically, only a little more than 3% of moves are across county or state lines — both of which have also halved in recent decades and are now standing at 1.8% and 1.4%, respectively.

Blame the aging population and housing unaffordability

Two important factors help explain the general decline in geographic mobility within the U.S. First, the aging population. Older workers and retirees are more settled and move less often than younger workers. Second, housing unaffordability plays an important role. In the 1970s, median home prices were about three times median household income. Since the early 2000s, they have been closer to five times median household income. This shift, combined with the massive surge in interest rates since the pandemic, has sparked a nationwide housing affordability crisis.

There is ample evidence that this has hindered geographic mobility. While California has some of the highest-productivity regions in the U.S., the state is experiencing migration outflows, largely because housing has become way too expensive. This is highly problematic from a labor market perspective, as workers should be encouraged to move to areas with higher productivity.

Regional construction hotspots offer pockets of affordability

The good news is that some regions within the U.S. continue to be more affordable than others. Several Sunbelt states, such as Texas, Arizona, and Utah, have been building housing at a much faster pace than California or the Northeast.

As a result, median home prices in the South have underperformed inflation over the past four years, with Texas and Arizona even recording outright declines. Although the national labor market has remained relatively static, some regions have managed to attract a steady inflow of workers as local construction booms have helped keep a lid on prices.

What’s the labor market connection?

Greater housing competition between states is certainly a good thing. The Sunbelt has exhibited stronger-than-average economic performance as workers have flocked to areas with more affordable housing and better job opportunities. Nevertheless, overall mobility has declined in the long run because other regions have failed to adopt a similar pro-growth approach. More states would need to embrace pro-housing policies for nationwide mobility to pick up.

The static housing market is bad news for workers because it restricts access to better job opportunities. It doesn't always make sense to relocate for a higher-paying role in California, for example, if disposable income is lower after accounting for housing costs — be it rent or mortgage payments. The mortgage lock-in effect can make moving for a better job a loss-making proposition. All of this means that the low-churn housing market feeds into the low-churn labor market and vice versa.

What does this mean for recruiters?

Housing unaffordability has risen in recent years, creating a static housing market with fewer transactions. Not only is this bad news for workers, but it is also bad from a hiring perspective because it restricts the talent pool that companies can draw on. A dysfunctional housing market makes it harder for recruiters to attract workers from other counties or states. While other factors, such as population aging, are also at play, housing unaffordability has certainly contributed to the decline in geographic mobility within the U.S. Some of the highest-productivity regions — particularly in New England — are not attracting as many workers as they should. In the case of California, the state is even actively losing them. The housing boom in parts of the Sunbelt, on the other hand, has gone hand in hand with an office construction boom in cities like Austin, Houston, and Denver. This makes sense. Companies are shifting part of their activity into the more dynamic regions of the country where the talent pool is expanding.

Photo credit: Diane Picchiottino

In the second half of 2025 — in the shadow of tariffs, D.O.G.E. and other drivers of uncertainty — private sector job growth in the U.S. ground to a halt. But in 2026, the story shifted in a decidedly more optimistic direction. In May, the labor market added 172,000 net new jobs, compared to expectations for a gain of 88,000; this solid May reading comes on the heels of 176,000 jobs added in April.

Zooming beyond the spring months shows a clear inflection point. Over the six months through May, private sector job growth has averaged a respectable 87,000 jobs. Compare that to the prior six months (May 2025 to November 2025) when that average was a paltry 17,000. There is clear evidence that job growth has turned a corner, reaccelerating above the “breakeven” rate needed to keep pace with population growth. This is good news.

Industry insights

Yes, healthcare continues to be the primary driver of employment gains, but growth has become slightly more diversified across other sectors. In May, healthcare and social assistance added 47,200 jobs. But the leisure and hospitality sector had its best month in over three years, growing by 70,000 jobs; it’s averaging gains of 48,000 over the past three months. Construction continues to (um) build up, averaging 14,000 jobs on a three-month basis.

The wonky “diffusion index,” which measures the breadth of job growth (by calculating the share of sectors with expanding employment) has ticked up to 51.8% on a six-month basis. The story is no longer just healthcare.

One sector showing signs of life after a long period of weakness is warehousing and storage, where job growth rose by 6,400 in May. On the surface, this may not seem like much, but the industry lost 45,000 jobs in 2025 while grappling with the sudden shock of tariffs — that uncertainty has since eased following the Supreme Court decision.

Air transportation employment fell by 8,700 in May, potentially due to Spirit Airlines ceasing operations. The airline abruptly laid off 17,000 workers at the start of the month, resulting in the Department of Labor stepping in and providing immediate worker assistance. Furthermore, the industry is grappling with higher fuel costs, leading several airlines to scale back flight plans — a sign the Iran war is having an impact on the labor market.

Labor force insights

Big picture, workers are highly employed. The unemployment rate was flat at 4.3%. And for prime-age workers (those 25-to-54), the employed share has remained unchanged at around 81% for...three years. Yes, the job-finding rate is still low at around 25% meaning it is still hard to find work if you’re actively looking. But layoffs have been very low, so for the most part workers are doing OK.

Despite the healthy pace of job growth, wage pressures continue to moderate, as average hourly earnings rose by 3.4% over the year. As indicated by the JOLTS report released earlier this week, quits continue to decline, reducing employers’ need to backfill roles. When accounting for the recent spike in oil prices, workers’ pay is likely not keeping pace with inflation.

Taking a broader perspective, the May jobs numbers are good, and the labor market is no longer the biggest source of worry in the economy. That distinction belongs to inflation. To the extent that workers are suffering, it’s largely because the Iran-War-induced spike in energy prices is pushing inflation higher and pushing real wage growth down (perhaps even negative). The Fed, and the American people, are rightly going to focus on prices, not jobs, soon.

What does this mean for recruiters?

The labor market in 2026 has materially improved from 2025, dominated by trade uncertainty, immigration restrictions, and a Federal government hiring freeze. For recruiters hiring for in-person roles — like restaurants, healthcare or construction — hiring competition has likely intensified over the past several months (or never cooled off).

Here are all the pieces that we published in May. Keep reading for data releases coming up this month and other interesting labor market news, brought to your inbox by the Recruitonomics team.

Upcoming Economic Data Releases and Events

• June 2: US Job Openings and Labor Turnover Survey (JOLTS)

• June 5: US Employment Situation Report

• June 5: Eurozone GDP (Q1 2026, regular estimate)

• June 10: US CPI

• June 12: UK GDP (monthly estimate, April 2026)

• June 17: UK CPI

• June 17: Eurozone CPI (final May reading)

• June 18: UK Labour Market Overview

• June 25: US GDP statistics (third estimate, Q1 2026)

In recent news:

Julius Probst, PhD

AI is fueling economic growth in South Korea

The AI boom continues to affect the global economy in various and sometimes unexpected ways. We recently discussed how the U.S. economy is benefiting from the construction of AI data centers that have started to pop up all over the country. The construction boom has also created a hiring surge for infrastructure-related roles in the regions where the data centers are being built — mostly remote areas where land and energy are abundant.

AI is not just fueling growth in the U.S. but is also having ripple effects on several Asian economies on the other side of the globe. Countries like South Korea and Taiwan specialize in producing semiconductors and computer chips, and are now experiencing a significant economic expansion. The rapidly rising demand for the chips needed to build data centers around the world is driving a manufacturing boom in South Korea's semiconductor industry. As a result, the country’s stock market has surged to unprecedented levels, recently overtaking the U.K. in terms of market capitalization. GDP is growing at an annual rate of about 3.6%, driven largely by exports.

Total monthly exports surged from about $60 billion one year ago to $85 billion in May. Almost the entirety of the increase is due to the rising value of semiconductor exports, which have risen from about $12 billion to $32 billion over the same period.

The hot economy is also creating a tight labor market. The unemployment rate of 2.8% remains well below pre-pandemic levels, while the prime-age labor force participation rate of 72% is at a historic high. The economic boom has created a very tight labor market, pulling in even more workers.

But the AI economy also has one downside, as there is one large group that does not seem to benefit right now: young workers. Mirroring the situation in the U.K., the U.S., and Europe, they are struggling to gain a foothold in the labor market. With the rollout of AI across more businesses, employers currently have a strong preference to hire experienced workers. Graduates, on the other hand, are having a harder time finding good employment opportunities. The participation rate of young workers in South Korea has plummeted from about 32% in 2022 to 25% more recently, with their labor market prospects deteriorating faster than in other OECD economies.

Canada’s labor market continues to weaken

Canada’s economy continues to underperform. The high tariffs that the U.S. administration has imposed on the rest of the world continue to be a drag on the Canadian business sector, which is highly dependent on exports to its southern neighbor.

The latest data revealed that GDP has been contracting for two consecutive quarters, meaning that the economy is now in a “technical recession”. The unemployment rate now stands at 6.9%, up from about 5.5% just two years ago.

Moreover, job growth has been negative since the beginning of the year. Payroll employment is back to where it was at the end of 2024, even as the labor force has been growing, resulting in higher unemployment.

US: Polarized job growth by firm size

Data from the payroll solutions company ADP shows that U.S. employment growth has been extremely polarized since 2020. Both very small employers — fewer than 20 employees — and very large employers — 500+ employees — have seen significant job growth since 2020. Small companies have grown by about 12% since the pandemic, while large companies have increased their headcount by close to 9%. It's medium-sized companies with more than 19 but fewer than 500 employees that have barely added headcount since 2020 and stagnated or even contracted in recent years.

This increasingly looks like a polarized labor market. It’s very hard to say what the drivers of this development might be, but AI could be a contributing factor: Big superstar firms are certainly the biggest gainers from this technology, while very small companies might also be able to leverage AI to scale up and outperform the competition. Either way, it's mid-sized employers who get left in the dust.

Photo credit: Anthony Fomin

In our last piece, we modeled the economic implications of a large AI boom. Unsurprisingly, depending on the sector and skill level, workers will be affected very differently by the technology. Our results show that AI-savvy knowledge workers are the biggest winners of technological change. Routine white-collar workers are at risk of displacement. Physical workers — jobs that require a physical presence, such as healthcare, construction, and hospitality — may also see modest gains as the economy grows more strongly. The million-dollar question is: Are we already seeing these dynamics play out? And the answer is unequivocally yes!

Hiring demand shows that worker fortunes are diverging

Even during periods of technological disruption, employment typically responds more slowly. So far, the emergence of AI has not led to any substantial job losses across advanced economies.

Hiring demand, on the other hand, is shifting more quickly. Vacancies and job postings respond rapidly to changing economic conditions: it is easier and less costly for employers to pause recruitment than to reduce headcount, especially in Europe, where worker protections are strong.

AI workers: Gain

Job postings data shows that demand for workers with AI skills has surged dramatically since 2022 across advanced economies. This trend is particularly true in countries that have a relatively large tech sector.

In the U.K., for example, the share of job postings mentioning AI terms has tripled, from about 2% a few years ago to nearly 7% more recently. There is absolutely no doubt that AI is already having a fundamental impact on the demand for workers who possess the skills needed to work with this new technology.

Routine white-collar workers: Pain

Meanwhile, U.S. job postings data suggest persistent weakness — some even speak of a recession — for many routine white-collar occupations. Following the big hiring boom coming out of the pandemic, many companies have frozen recruitment for roles across marketing and media, tech, banking, consulting, and administrative functions. Job postings have declined well below pre-pandemic levels.

Large consultancies and many financial companies have publicly announced reductions in headcount in the years ahead in a drive for AI-driven efficiency. This is not a job apocalypse by any means, but it suggests that this is more than just cyclical weakness: it’s a structural shift driven by the emergence of AI. While we shouldn’t expect mass layoffs, hiring demand for many routine white-collar jobs will remain depressed, possibly for years to come.

Physical workers: More gain than pain

Let’s define this group once more. These are jobs that require a physical presence rather than being desk-based. Most blue-collar occupations fall into this category. Many roles in construction, retail, hospitality and accommodation cannot be done remotely. The waiters serving you in a restaurant, for example, need to be physically present.

But there are also many high-skilled jobs that require a physical presence. Think of surgeons, doctors, nurses and other medical and care occupations as well as teaching roles, air traffic controllers, pilots, and more. These jobs generally require workers to be on site, which makes them much less prone to AI automation.

Since the introduction of ChatGPT, hiring demand for physical workers has fallen significantly less than demand for various white-collar occupations. In fact, job postings for a wide range of physical roles — whether in construction or healthcare — remain well above pre-pandemic levels. While job postings have declined from the 2022 peak, demand for physical work remains elevated, precisely as our economic model predicts. The boost in AI production is also increasing demand for physical output.

Are we seeing wage dispersion?

The diverging trends in hiring demand across different worker types are already affecting relative compensation across industries. As expected, workers with AI skills are experiencing significant pay increases. Computer and information research scientists and data scientists with AI skills have seen more than 17% and 21% cumulative gain in advertised wages, respectively, over the last three years. That corresponds to an annual rate of about 5.4% and 6.8%, outperforming inflation as well as average worker wage growth by a substantial margin.

Routine white-collar workers, on the other hand, have seen significantly smaller wage gains, or even outright stagnation, as the demand for those types of workers has fallen.

Nominal wages are typically sticky — companies generally prefer to lay off workers rather than cut pay. The adjustment to weaker demand therefore often occurs through wage erosion. With inflation close to 3%, white-collar workers are effectively taking home less if wage growth fails to keep pace with rising prices. This is exactly what is happening in certain occupations, such as writers and editors, advertising sales agents, and administrative services managers. Annualized advertised wage growth has been 3.3%, 1.8%, and 0%, respectively, well below inflation for the latter two professions.

The demand for many blue-collar occupations — what we have dubbed physical work — remains solid. This is particularly true for healthcare roles, construction, infrastructure and maintenance jobs. None of these can easily be done by AI, at least for now. As the AI boom supports broader economic growth, demand for physical work has risen at the same time as the supply of workers in these roles has tightened, partly due to Trump’s restrictive immigration policies.

Consequently, wage gains for maintenance technicians, home care aides, truck drivers, and similar roles have far outpaced median advertised wage growth in recent years. Between early 2023 and early 2026, annual wages rose by 3.8% for maintenance technicians and 6% for home care aides, while truck driver wages climbed by a striking 12% per year.

The 3-tier segmentation of the labor market

We believe that market segmentation among three types of workers — AI knowledge workers, routine white-collar workers, and physical workers — will be a defining feature of the economy for years to come.

But AI adoption takes time. Workers need to learn the technology, companies need to invest, and the lag between investment and productivity gains can be long. It will therefore take years before certain tasks become obsolete and new jobs emerge to replace them.

The winners and losers are clear. AI knowledge workers will see strong wage gains, with top earners commanding high six-figure salaries. Routine white-collar workers will face stagnating or declining real wages as their tasks are automated. This could affect a significant share of today’s middle class in cities like London, Boston, and the Bay Area. Physical workers, meanwhile, stand to benefit from rising demand — particularly as displaced white-collar workers cannot easily move into these roles in the short term.

What does this mean for recruiters?

For the first time in decades, certain physical jobs are expected to out-earn many white-collar roles — a dynamic we call the “collar-flip.” While this could reduce inequality between these two groups, it will also introduce significant disruption for millions of desk-based workers.

At the same time, new AI roles are emerging, often with substantial compensation packages. But AI adoption is also making the skill sets of many experienced workers obsolete faster than ever. Reskilling, upskilling, and skills-based hiring will be critical in the decade ahead.

Photo Credit: Stefan Cosma

Armageddon or abundance?

In recent years, there has been a major debate about how AI will transform the economy and labor market. Predictions are all over the place, ranging from a doomsday scenario with massive job losses for everyone to the so-called singularity — a growth explosion that delivers a significant boost in global living standards (think Star Trek).

However, many of these predictions are not based on strong evidence. To better understand what might happen, we created a macroeconomic model to see how an AI boom might potentially play out.

It is important to remember that in any model there is always a trade-off between complexity and realism. It should not be overly complicated but still needs to reflect real-world conditions fairly well. The assumptions (foundations) are key.

The model: An economy with two sectors and three worker types

Here is how the model works. While you could skip this section, understanding the assumptions helps explain how things play out.

Assumption 1: The economy consists of a “physical” and a “knowledge” sector. Both combine capital and labor to produce output (stuff).

The physical sector consists of jobs that require a physical presence, hands-on skills, and human interaction. This includes essential services that cannot be digitized like health care (nurses, therapists, caretakers), housing and construction (plumbers, builders), in-person education, and food and accommodation services.

The knowledge sector, on the other hand, uses AI and skilled workers to create things like data analysis, information, and software-driven services.

Assumption 2: The knowledge sector employs routine white-collar workers and skilled knowledge workers.

Routine white-collar workers perform repetitive tasks such as data entry and basic administrative work, while skilled knowledge workers design, manage, and leverage AI to create more advanced outputs.

Assumption 3: AI capital is a substitute for routine white-collar work and a complement for knowledge workers.

This means AI can replace routine white-collar workers by automating their tasks, while simultaneously making skilled knowledge workers more productive.

Assumption 4: The model includes frictions that prevent workers from changing sectors easily.

Routine white-collar workers can move into the physical sector, but it involves a cost. Think of it as reskilling. It takes time for a secretarial worker to become an employee in the care sector. Similarly, becoming a skilled knowledge worker requires even more education and training.

Assumption 5: The physical and the knowledge sector are complementary.

Even with fast and cheap knowledge services, those services still need to be applied in the real world. For instance, AI can create the perfect surgical plan in seconds, but you still need a nurse to prep the room and a doctor to execute the procedure. AI can design optimal housing, but you still need a construction crew to build it. People also continue to demand physical goods and services, such as clothing, jewellery, furniture, dining, and entertainment. Many of these rely on workers in the physical sector.

How does the AI boom transform the workforce?

You might ask yourself now: Ok, so what does all of this mean?

Thanks to the setup above, we can now model how an AI growth explosion might unfold. What happens to the economy and workforce if, for instance, AI capital — the stock of computational infrastructure, trained models, and AI systems that firms deploy to do work — grows by 20% each year for the next decade?

First and foremost, the surge in AI capital boosts production in the knowledge sector. But it also creates positive spillover effects for the rest of the economy, increasing production in the physical sector as well. Basically, as we produce more output with AI, demand for other goods and services like healthcare, housing, infrastructure, food and hospitality increases, too. However, this rise in economic activity does not benefit all workers equally. As the new technology spreads, there are clear winners and losers.

AI knowledge workers: Workers with AI skills benefit the most from the new technology. Their productivity rises significantly, which leads to higher wages. Because it is relatively hard for routine white-collar workers to upskill and become AI experts, the wage gap between the two types of workers in the knowledge sector starts growing over time.

Routine white-collar workers: These workers tend to lose out from the deployment of the new technology. As AI replaces many of their tasks, their productivity declines and so do their wages.

Physical workers: What happens to physical workers’ compensation is ambiguous. On the one hand, stronger demand in the physical sector pushes wages up. On the other hand, unemployed white-collar workers move into these roles, increasing labor supply and putting downward pressure on wages. Which effect ends up dominating depends on the balance between rising demand and the growing number of workers entering these roles.

Under realistic assumptions, wages for physical workers rise over time. Thanks to the AI economic boom, the demand for physical workers increases faster than the supply of routine white-collar workers moving into the sector.

Workers might not lose overall, but the income distribution changes swiftly

What happens to the labor share — the portion of GDP paid out as salaries — is ultimately uncertain. AI knowledge workers see large wage gains. Physical workers may also benefit as the economy demands more of the tasks that AI cannot perform. Meanwhile, routine white-collar workers lose ground.

Whether the overall labor share rises or falls depends on whether higher wages for AI knowledge workers and physical workers offset the declining wages for routine office roles.

Total wage income in the economy can remain roughly flat while the distribution of that income changes dramatically. Inequality between AI-complementary workers and the rest widens, but the picture is more nuanced across the lower and middle parts of the income distribution. Physical workers, historically the lowest-paid group, may see their wages catch up to or even surpass those of routine white-collar workers.

Recent data shows us that the story is complicated. While the U.S. labor share has fallen since the pandemic, the opposite is true for the U.K. Structural shifts in who earns what can happen even as the total share going to workers moves only modestly.

Are other scenarios possible?

Clearly, yes.

One extreme scenario is that AI becomes a labor-displacing technology for all workers in the knowledge sector. In that case, both knowledge and routine white-collar workers lose their jobs, pushing more people into the physical sector and putting downward pressure on wages. Productivity still increases, but the gains accrue to AI capital owners. This raises inequality and eventually slows economic growth due to a decline in consumption.

Another possibility is that AI-driven output and physical production are not complementary, meaning that more and more value is created in the knowledge sector alone. In this case, inequality would rise sharply, as only knowledge workers benefit while the labor share plummets. Growth would again be limited by weak consumer spending. This outcome, however, appears even less plausible. Physical goods and services — from housing and food to transport and care — remain central to the economy, and human labor is likely to stay essential in their production.

Summing up

AI will fundamentally reshape the labor market. Some jobs will disappear, others will change, new jobs will be created, and the gains will not be evenly shared. While our model assumes an extreme AI growth scenario, the direction of travel is clear: routine white-collar workers lose out as AI replaces their work. The physical sector initially benefits from higher AI-driven output, raising demand for housing, healthcare, infrastructure, food, and leisure — and lifting wages. Over time, displaced white-collar workers flow into physical roles, increasing the supply of labor and capping further wage growth.

The effects on inequality and the labor share are harder to pin down, but the winners are not: skilled knowledge workers benefit the most, as AI strongly complements their tasks, driving sharp gains in productivity and wages.

In a follow-up post, we will show that several of these dynamics have already started to unfold since the release of ChatGPT in late 2022 — and explore what that means for recruitment.

Good economic momentum in the first quarter is old news

Somewhat surprisingly, the U.K. economy eked out a quarterly growth rate of 0.6% in the first quarter of this year, making it one of the fastest-growing OECD economies early in 2026. However, two notes of caution. First, strong first-quarter performance has been a recurring pattern, having some of us wonder whether there is something wrong with the seasonal adjustment method used by the Office for National Statistics (ONS). Second, economists widely expect the rest of the year to be extremely weak, given how the global oil price shock is unfolding. The International Monetary Fund (IMF) is now projecting 1% GDP growth for the U.K. for 2026, meaning that the second through fourth quarters will see near-stagnation.

Unemployment up, vacancies down

The decline in the unemployment rate to under 5% at the beginning of the year struck us as slightly unrealistic and inconsistent with where the labor market was heading — and sure enough, the latest data shows that unemployment is back at 5%.

Meanwhile, vacancies continue to fall — down by 7% on the year and at their lowest level since early 2015. It is abundantly clear that labor demand has taken yet another hit due to the global oil price shock. Companies are pausing hiring as economic momentum is slowing considerably, with some sectors being significantly more affected than others.

For now, retail and hospitality are showing the largest declines in employment, with both sectors down by more than 100,000 jobs since mid-2024. Successive minimum wage increases paired with tax hikes are mostly the reason, but with oil prices through the roof, both sectors will continue to suffer as consumer spending retreats.

Massive job losses, but beware of data revisions

The payroll employment data shows that roughly 100,000 payroll jobs have been lost in April alone, putting the cumulative decline since mid-2024 at about 200,000. However, last month’s data is preliminary and certainly inaccurate, as the ONS itself cautions. Payroll figures are always more unreliable at the beginning of the tax year.

Furthermore, every month showing significant job losses has been revised upward — and often by a significant amount. Based on recent historical data, we might end up with job losses in April being somewhere in the range of 10,000 to 30,000, which would be bad enough.

Real wages are heading toward stagnation again

Following more than two years of decent inflation-adjusted pay gains with nominal wage growth exceeding the rate of inflation by several percentage points, workers are now experiencing a more challenging environment again. While currently just below 3%, inflation is expected to accelerate to about 4% in the coming months. Pay gains, on the other hand, are heading in the opposite direction — private sector wage growth is already closer to 3%, while public sector wages are still growing at a rate of more than 5%.

While the decline in wage growth is good news from a monetary policy perspective — reducing the risk of a wage-price spiral — it will weigh on consumption as households are seeing their paychecks being eroded by rising prices.

A potential leadership contest is rattling financial markets

On top of everything else, the U.K. is also suffering from significant domestic political turmoil, which is now starting to weigh on economic activity. Following Labour’s heavy election losses in early May, culminating in the resignation of several ministers, Prime Minister Starmer’s government is weakened to such an extent that a leadership contest this year can no longer be ruled out.

Financial markets are rattled by the prospect of Andy Burnham, current mayor of Manchester, becoming the next U.K. prime minister — prediction markets give him a more than 40% chance of succeeding Starmer this year. Burnham, a pro-regulation and pro-government-spending candidate on the left, is regarded by the City as a greater evil than the current Labour government.

With U.K. debt approaching 100% of GDP and government interest rate expenses exceeding 100 billion pounds each year (more than 3.5% of GDP), it is hard to see how Burnham’s policies can be successfully implemented without financial markets freaking out even more. Current borrowing costs are already spiking in anticipation that Starmer won’t be making it to the end of the year.

Instead of Singapore, it’s more like Rome on the Thames. The “Italianization” of British politics is another factor creating domestic uncertainty and even weighing on the government’s finances — both bad news for economic activity and the hiring outlook this year.

What does this mean for recruiters?

There is no doubt that the U.K. economy is slowing again. While not showing up in the GDP data yet, the direction of travel is clear. The oil shock is creating inflationary pressures, squeezing consumers and businesses alike. Central banks are tightening monetary policy, which is leading to a further decline in economic activity. Furthermore, the domestic political turmoil is causing interest rates to rise, putting pressure on the government budget. As companies expect an even more challenging economic environment throughout the coming quarters, they are putting recruitment on hold. Job losses might accelerate in the coming months until economic momentum and morale improve. Do not expect hiring to pick up throughout the summer. As such, 2026 continues to be a very challenging year for jobseekers due to a stagnant labor market.

Photo Credit: Brian Stalter

The consensus view of the U.S. labor market is that job growth is slowing, both because of weaker employer demand and declines in labor supply thanks to immigration restrictions. The April jobs report offers tentative signals that may defy that simple narrative.

Employment growth defies the skeptics

On the surface, the report was reassuringly solid: 115,000 jobs added (well above the median forecast) and the unemployment rate held steady at 4.3%. Healthcare and social assistance once again led all sectors in job growth, adding 54,000 jobs. Wage growth for all private employees was 3.6% year-over-year — a slight miss on the soft side. So far, all seems normal.

Where the report bucks conventional wisdom is that the underlying pace of private-sector job growth — now at 68,000 per month, over the six months through April — the highest in 12 months. This exceeds the so-called “break-even” rate economists have estimated based on changing demographics. And despite the stronger-than-expected job gains, the actual unemployment rate (un-rounded) increased slightly, from 4.26% to 4.34%. As pointed out by Greg Ip, this defies the narrative: if job growth is so strong, and restricted immigration is (presumably) reducing labor force growth, then the unemployment rate should be going down.

The most likely explanation is that the opposite is happening on the labor supply side. Rather than shrinking, the pool of available workers appears to be growing. More people looking for work — not fewer jobs being created — is what’s nudging the unemployment rate up.

Jobs are spreading beyond healthcare

Moreover, the breadth of job gains has recovered from its low points over the past six months. The diffusion index, which measures what share of industries are adding jobs compared to those contracting, has been trending upward on a 3- and 6-month basis. The 1-month index is also up materially from six months ago (53.8 in April 2026, compared to 48.6 in October 2025).

This tells us that a labor market which once was only adding healthcare jobs is now just mostly adding healthcare jobs.

Retail has seen a pickup in job gains over the three months through April, adding roughly 13,000 per month; ditto for white-collar jobs in professional and business services, up about 12,000 a month. Transportation and warehousing, long subdued due to tariffs and associated uncertainty, added a whopping 30,000 jobs in April. This surge is unexpected.

What does this mean for recruiters?

All this to say: this wasn’t just a better-than-expected jobs report. The expected oil shock effect from the Iran war is not really showing up (yet, if ever). The April jobs report offered early, tentative signs that job growth may be more broad-based than at any point in the last year, and that labor supply isn’t as great of a chokepoint as we thought.

For recruiters, that broadening matters. Hiring demand is no longer concentrated in healthcare alone, and more sectors are quietly coming back online. By no means is this a jobs boom — far from it — but it does provide evidence of labor market stability. That stability, combined with worrisome inflation readings, suggests the Fed is more likely to remain biased toward holding interest rates steady, if not possibly hike in the future.

Photo Credit: Maryna Yazbeck

We had triple central bank action this week! Despite the oil shock, the Fed, European Central Bank (ECB), and Bank of England (BoE) all decided to keep interest rates on hold. But what is notable from the monetary policy communication is how quickly the debate has changed. Oil and gas prices are already feeding back into inflation across all three geographies as the Iran war has pushed them well above pre-conflict levels (Brent is currently exceeding $110). While none of the central banks moved this round, the dissent patterns and press-conference language all point in the same hawkish direction: the next policy change will likely be a hike rather than a cut, and financial markets have adjusted accordingly.

Fed: A divided final meeting for Powell

In the U.S., inflation was already accelerating and heading toward 4% before the oil shock. The tariffs imposed by the Trump administration are the main culprit, increasing the price of imported goods for American consumers.

With rising energy prices adding to inflationary pressure, the Fed decided to keep interest rates steady in its target range of 3.5%–3.75% on Wednesday. Of note, the 8–4 vote on the Federal Open Market Committee (FOMC) was the most divided Fed decision since 1992. Trump appointee Stephen Miran wanted a rate cut, while three other dissenters objected to keeping an easing bias in the statement. Financial markets read the split as hawkish, pricing in a potential rate hike by the end of the year.

This was almost certainly Powell’s last meeting as Chair of the Federal Reserve. Kevin Warsh’s nomination cleared the Senate Banking Committee the same morning, and he is expected to be confirmed in time for the June FOMC meeting. The unusual wrinkle is that Powell is staying on as a governor — his term runs until 2028 — making him the first chair since 1948 to remain on the board after stepping down from the top job. The reason: Trump’s repeated attacks threatening Federal Reserve independence. Practically, that means Warsh will chair a committee where the institutional memory — and one vote — still belongs to Powell, narrowing the room for the interest rate cuts that Trump has repeatedly pushed for.

ECB: A hawkish hold with rate hikes baked in later this year

The ECB left its policy rate at 2% on the same day Eurozone inflation jumped to 3.0% — the highest level since September 2023 — with energy costs up by more than 10%.

ECB President Christine Lagarde described the decision as “an informed decision,” given that central banks face insufficient information. But with the magnitude and duration of the shock hard to pin down, much of this remains guesswork.

The ECB acknowledged that upside risks to inflation and downside risks to growth have intensified. The combination is the textbook setup for a stagflation debate, though Lagarde pushed back against that label by pointing to a still-resilient labor market in the Eurozone and domestic demand contributing to growth.

The communication, in other words, was a hawkish hold. Financial markets fully expect the ECB to hike rates in June, with at least another rate hike priced in by end of year.

BoE: Chief Economist dissents in favor of a rate hike

Inflation in the U.K. rose to 3.3% in March, driven largely by motor fuels as pump prices surged to their highest levels since 2024. Britain’s heavy gas dependence, the highest government bond yields in the G7, and a politically weakened Starmer government make the energy shock more damaging than for continental Europe.

The Monetary Policy Committee (MPC) voted 8–1 to hold the policy rate at 3.75%. Notably, Chief Economist Huw Pill dissented in favor of an immediate interest rate hike. The Bank’s economic projections sketched three scenarios. The benign one has inflation reaching 3.5% before fading relatively quickly, while the most adverse has consumer prices peaking at 6.2% in early 2027 with the policy rate climbing to 5.25%.

No wonder, then, that Governor Bailey also struck a hawkish tone, warning that monetary policy would need to respond if energy pass-through became “embedded and persistent.” Pre-war forecasts of two BoE rate cuts in 2026 have flipped, with financial markets now pricing in two rate hikes instead.

What does this mean for recruiters?

Our recent piece laid out three channels through which the Iran oil shock feeds into hiring: a direct hit to household discretionary income, a profit-margin squeeze for businesses, and a monetary-policy tightening that piles on top. This week’s meetings make it clear that the third channel is no longer hypothetical. The Fed, ECB, and BoE have all moved from “we will likely ease policy” to “the next move is probably up.” Financial markets are reacting accordingly: government bond yields have surged, and credit is getting more expensive for households and businesses alike.

For recruiters, the practical implication is that rate-sensitive sectors — construction, real estate, manufacturing — face a double whammy of weaker demand and higher financing costs at exactly the moment central banks are signaling they will lean hawkish rather than rescue them. Hospitality and retail will feel the consumer-spending pullback. Healthcare, education, and the public sector remain the most insulated, as they typically are in this kind of cycle.

The U.K. economy is the canary in the coal mine: the BoE’s own adverse scenario has interest rates climbing to 5.25%. With Britain’s high energy exposure and bond-market vulnerability, the labor market could weaken faster there than in the U.S. or Eurozone. This isn’t a recession call yet, but recruiters should prepare for a rough period of higher inflation and lower growth across advanced economies. Hiring plans for the back half of 2026 need to be built around that.