Photo credit: Harri P

Chances are many of you have checked your stock portfolio or 401(k) lately. Even after last week’s rather substantial decline, it’s probably worth a lot more than it was two years ago, thanks to the global AI boom (bubble?). You might now wonder what stocks have to do with the labor market. Well, probably more than you think! While the stock market isn’t the economy, it’s also not NOT the economy: equity wealth supports consumer spending and business investment, both of which in turn affect job growth.

In this piece, we show to what extent stock prices have boosted GDP and job creation. And the channel also works in reverse. If the AI economy blows up, a serious stock market crash could cause a recession.

An unprecedented equity boom, fueled by AI

The total market capitalization of the Nasdaq and New York Stock Exchange, which account for nearly all U.S. stock-market value, recently reached a record high of almost $80 trillion. Foreigners own a big slice of U.S. stocks, but American households still hold a total of $74 trillion in equities (U.S. and foreign). This represents an increase of about $24 trillion since the first quarter of 2024, or about 48% in just over two years.

How much of that is driven by the AI economy? Hard to say. Estimates vary, but some analysts think most of it: One report suggests that just 42 artificial intelligence stocks have contributed about 67% of the price increase of the S&P 500. They have also accounted for about 58% of the index’s earnings growth and a stunning 81% of the growth in capital expenditure. We truly live in an economy that is being shaped by this technological cycle.

Growth is driven by the American consumer

But even with all of today’s investment spending going into data centers, energy, and chips, household consumption still accounts for most of economic output. There have been some big fluctuations since 2020 — spending plummeted during the pandemic only to come back soaring when the economy opened up again — but over the economic cycle, about two-thirds of total GDP results from consumer spending.

So why do the asset price gains matter for the economy? Well, economic research shows that household consumption is partly driven by wealth.

While the effect is not enormous, it does influence the economic cycle. A $1 increase in wealth typically leads to about 5 cents of additional spending. By that metric, the $24 trillion boom since 2024 could potentially create an additional $1.2 trillion in household consumption. Research shows, though, that households react with a lag. Asset prices move first; consumers start spending several quarters later. Because much of the boom is recent — about 40% of the gain occurred this year — it is reasonable to assume that only 50% to 60% of the consumption boost has arrived so far. Even then, this implies that consumer spending is now running about $600 billion higher on an annual basis than otherwise, an increase of roughly $300 billion a year over the past two years. Fed research shows that about 10% of that spending typically leaks abroad via imports. This means that the stock boom lifted U.S. output by about $270 billion each year, adding roughly 0.85 percentage points to nominal GDP growth in a $32 trillion economy. Since some of that extra demand simply pushes up prices, the boost to real GDP growth is smaller — a fair assumption is about half, or 0.4 to 0.5 percentage points per year.

What does this mean for the labor market?

Here is where it gets even trickier. The relationship between real GDP growth and employment growth is somewhat unstable — it probably depends on where you are in the economic cycle. A simple rule-of-thumb called Okun’s law suggests that the 0.9-percentage-point contribution to real GDP growth over two years reduced the unemployment rate by about 0.4 percentage points in total. With a labor force of about 170 million, that means an additional 600,000 jobs, or 300,000 annually.

Explainer: This graph plots the relationship between real GDP growth and the unemployment rate. The slope indicates that each additional percentage point of real GDP growth lowers the unemployment rate by roughly 0.4 percentage points.

Since the summer of 2024, the U.S. economy added about 1.35 million payroll jobs. Accordingly, about 45% of job creation (+600,000) can be attributed to the equity boom, with the price gains of AI stocks accounting for roughly one-third of the total (+400,000).

The wealth effect also helps resolve another puzzle. Consumption has been holding up well even as inflation-adjusted wage growth has turned negative because of surging oil prices. U.S. consumers are obviously feeling the pinch, but not enough to stop shopping: They are spending out of wealth and not just income.

What goes up can also come down — duh!

Unfortunately, what is true on the way up is also true on the way down. A stock market crash could severely harm economic growth, causing substantial job losses across all sectors as consumer spending dries up. It would also create negative spillover effects for the rest of the world. If the U.S. consumer sneezes, the global economy catches a cold. A 25% to 30% drop in equities might be sufficient to undo the growth boom and erase its job growth. For context: during the Great Recession, equity markets fell by more than 50%.

To be crystal clear, we do not in any way forecast that this will happen; we only note that it might. Furthermore, any downside scenario needs to consider how policymakers would react. While high public debt limits the scope for a fiscal response, monetary policy can prevent a severe recession arising from a stock market crash by aggressively lowering interest rates and injecting money into the economy.

What does this mean for recruiters?

Our back-of-the-envelope calculations suggest that the stock market boom has contributed significantly to both GDP growth and job creation since early 2024. The AI economy is not just about building data centers and AI-related infrastructure en masse; it’s also propping up consumer spending via the wealth effect. Through those two channels combined, the U.S. economy is now highly reliant on AI. This has important implications going forward. A bursting bubble could substantially lower growth, cause a severe job contraction, and risk plunging the economy into recession. This is probably why the Bank of England is considering adding such a scenario to its next stress test, and I would be very surprised if people at the Fed weren’t thinking about the same issue.

For recruiters, this means the boom has supported more of your organization’s hiring than you may realize, as household consumption supports every sector in the economy, from transportation and hospitality to retail. The flip side is that, in the event of a stock market downturn, recruitment in your organization could also freeze more quickly than you might anticipate.

Payroll employment positively surprises

Payroll employment is growing meaningfully for the first time in over a year. Job growth in September was close to 13,000, better than analysts expected. Meanwhile, the August number was revised up to about 1,000, a marked improvement from the previously reported minus 26,000. As a side note, this also shows you that the first data release of the payroll numbers is often imprecise and should therefore be taken with a grain of salt.

The big question that everybody is asking right now: Are the two consecutive months of positive job growth a sign that the labor market has stabilized and is turning a corner? Hopefully yes, but it might still be too early to tell. As the chart below shows, payroll employment also grew in July and August 2025, and again in December and January, before taking another turn for the worse.

While the recent improvement is obviously good news, payroll employment is still down by a cumulative total of approximately 170,000 since the summer of 2024. This shows the extent to which the U.K. labor market has weakened in recent years on the back of the massive surge in employment costs — successive minimum wage hikes and the increase in employer National Insurance contributions (NICs) — that has hurt employers and reduced hiring.

Employment up, unemployment down — but data concerns remain

The employment rate for workers aged 16 to 64 has improved in recent months, ticking up to 75.4%. This represents an all-time high for the last three years. Note that this measure comes from a household survey and covers all types of work, including self-employment, not just payroll jobs.

There is also some notable improvement in the unemployment rate, which declined to 4.7%. These data points come with the usual disclaimer. In recent years, the Office for National Statistics (ONS) has had problems with its household-based Labour Force Survey, which tracks both of these series. Falling response rates have introduced some volatility in the underlying data. In other words, we cannot be confident that every point estimate is accurate. Nevertheless, the unemployment rate has now fallen by 0.5 percentage points from its peak of 5.2% in the winter of last year. That is now a trend that is hard to dismiss.

Hiring remains depressed

The bad news in this employment report is that hiring remains structurally depressed. The number of vacancies in the U.K. has now declined to about 691,000. Outside the COVID-19 pandemic, that is now the lowest number in more than 12 years. While the unemployment rate remains low by historical standards, this is simply a very bad labor market if you are looking for a new role or are trying to enter the labor market. That is why many workers currently feel stuck in their jobs — the labor market doesn’t offer them good outside options — and why youth unemployment has soared. The ONS reports that its vacancy survey indicates it is predominantly smaller businesses that have stopped hiring. They are suffering the most from the surge in employment costs caused by the rise in the minimum wage and higher employer NICs.

Wage growth still positive — for now

Despite the oil price shock earlier this year, real wage growth remains in positive territory. Nominal wages are growing at a rate of about 4%, depending on which measure you use, while inflation currently sits at 3.1%. This is good news for workers and can partly explain why the U.K. economy has been doing OK this summer. Workers’ pay hasn’t been eroded by inflation yet, which has helped support consumption. Nevertheless, we need to caution that the gap between the two will narrow over time. The Bank of England’s latest projections for the Consumer Price Index have it going up to just over 4% by the first quarter of 2027. This implies stagnant or even slightly negative inflation-adjusted wage growth at the beginning of next year. The effects of the oil price shock will thus continue to play out.

What does this mean for recruiters?

With two consecutive months of positive payroll growth, the latest employment report provides some tentative evidence that the U.K. labor market is stabilizing and potentially improving from here on out. Yet some caution is warranted, as we’ve experienced a false dawn before. Almost a year ago, we also saw two months of positive job growth before employment losses accelerated again. Moreover, vacancy numbers continue to deteriorate. If hiring doesn’t start accelerating any time soon, employment numbers will continue to stagnate or worsen. Two major headwinds are potentially holding back the labor market in the U.K. First, the effects of the oil price shock haven’t fully unfolded yet, as inflation will continue to rise until early next year. Second, there is again plenty of speculation about the next Labour Budget, with most expecting tax hikes. Amid all this uncertainty, businesses remain wary of expanding headcount prematurely. For recruiters, all of this means that the economic environment in the U.K. remains challenging, putting a lid on hiring across sectors.

Photo credit: Steff Hanson

The U.K. economy has been growing again. While this should theoretically be good news for workers, this time is different. Despite better economic momentum, the labor market has continued to lose jobs. Graduates and entry-level workers have suffered the most as companies have stopped hiring. The sectors that are contributing disproportionately to economic growth are tech and professional services, exactly where AI gains are expected to show up. Hospitality and retail have seen the highest job losses, driven by a surge in employment costs due to a significant payroll tax increase and successive minimum wage hikes under the Labour government. As a result, businesses have started to invest more again, automating some of the work that has become more costly. While higher economic output will benefit some workers, the jobless recovery is threatening to leave others behind.

GDP is growing despite headwinds

Since the first quarter of 2023, U.K. GDP has expanded by 3.6%. Economic momentum accelerated markedly this year, with annualized growth running at a rate of more than 2%, about twice as fast as last year. While the oil shock is now weighing on the outlook in the final quarter, economic growth has been significantly more robust than forecasters had anticipated in spring.

But despite this reasonably good performance, the job market has continued to suffer. Payroll employment has been on a downward trajectory since mid-2024, with some 250,000 jobs lost since then. This 24-month contraction is now the longest on record, even exceeding that of the Great Recession in terms of duration.

There are two economic trends that are mainly responsible for this jobless recovery: AI has started to boost output but not employment, while the large surge in employment costs has caused major job losses in retail and hospitality.

Productivity is rising in high-value-added services

Looking at which sectors are driving growth, we are starting to see signs that AI adoption is having an impact on the economy. Between 2019 and early 2026, output per hour increased by about 2.9% in the U.K. Excluding manufacturing, two sectors are the main driver of economic growth in the U.K., even as they only account for only a little over 15% of economic activity: information and communication (tech) and professional services. In fact, their growth contribution alone adds up to about 145% of the economy-wide gain, while most other sectors are net negative from a productivity standpoint.

The fact that two high-value-added industries, employing a large share of skilled white-collar workers, have accelerated in recent years is no coincidence. It is exactly what one would expect to happen as AI gets increasingly deployed: companies are producing more with the same number of workers. While this is boosting revenues, it’s also driving up compensation, at least for those workers who can successfully harness some of the productivity gains unleashed by AI.

Labor costs have surged

While AI might have caused a reduction in hiring across several white-collar occupations, it hasn’t been a main driver of job losses so far. For that, we need to look elsewhere. Economists at the Bank of England have identified the surge in employment costs that occurred under the Starmer government as one of the main factors driving the layoffs. Minimum wage hikes together with the large increase in National Insurance contributions turned out to be a toxic combination for employers who were already struggling amid a weak economic backdrop. OECD data shows that unit labor costs — a proxy for total employment costs that takes productivity into account — increased at a significantly faster pace in the U.K. than in other advanced economies between 2023 and 2026: There was a three-percentage-point gap between the U.S. and U.K. for several years. While it has narrowed more recently, forecasts expect U.K. labor costs to grow faster than those in other countries in the years to come. It is this extreme surge that can explain why the layoffs have predominantly affected low-margin industries like retail and hospitality, where many employers could not keep up with the rising wage bill.

Businesses are investing more, automating work

Business investment in the U.K. was stagnant for the better part of the decade following Brexit but has now risen by more than 7% in inflation-adjusted terms since 2024. Undoubtedly, employers are using technology to bring down wage bills. While a greater push toward automation increases efficiency and drives productivity gains, which will be good for the economy in the long run, this is probably not exactly what the government had in mind when pushing through its minimum wage agenda. Researchers and policymakers agree that the U.K.’s wage floor — one of the highest in the world — is now exerting an economic toll, which overwhelmingly falls on the young and less affluent as their labor market prospects have deteriorated the most. Youth unemployment is now at its highest level in more than a decade.

What does this mean for recruiters?

For several years following Brexit, the U.K. economy had a capital problem. Neither the business sector nor the public sector was investing enough, causing economic stagnation even as the labor market was close to full employment. Now, the U.K. has a labor problem. The private sector is investing again, and AI is contributing to significant productivity gains in high-value-added services. This is boosting output, but it hasn’t created many jobs. Moreover, companies have started to automate work in response to the surge in labor costs, leading to substantial job losses across sectors, with retail and hospitality affected the most. The economy has shifted to a new equilibrium with more capital and less labor because of technological trends and taxation. While the British case is extreme, other countries, such as the U.S., have also seen their labor markets weaken even as AI-driven growth has boosted GDP and productivity.

For recruiters, this means that the current hiring drought might reverse only slowly, especially as global uncertainty remains a concern. Companies will continue to be cautious and cost-conscious in their hiring approach. There are two pockets of the labor market where we expect hiring competition to be fiercer, and both are related to the AI economy. First, the data center construction boom and rising energy needs are creating higher demand for skilled trades. Second, the demand for workers with AI skills in professional services and tech is soaring. As talent supply hasn’t kept up, expect rising compensation in that space.

The September jobs report was disappointing, with only 29,000 payroll jobs added. Moreover, revisions subtracted another 60,000 jobs from the July and August figures. This weakness came as a significant surprise to most forecasters, who had expected an increase of about 90,000 jobs in September. As a result of today’s lackluster report, the six-month moving average of job growth has fallen back to 65,000 — a steep decline from over 100,000 just one month ago.

These numbers also suggest that the labor market is currently contributing little to the inflationary pressures in the broader economy, which are being driven mostly by rising commodity prices. Although monetary policymakers are still expected to hike rates by the end of the year, today’s employment numbers make it more likely that they will hold at the end of the month.

Industry Breakdown

Unsurprisingly, the industry breakdown showed that some sectors expanded while others contracted. Healthcare is one part of the economy that continues to demonstrate strength, adding about 23,000 jobs in September. Construction and hospitality added roughly 11,000 and 10,000, respectively. Manufacturing gained just over 9,000 jobs, continuing the industry’s noticeable rebound this year. By contrast, employment in information and professional and business services fell by about 10,000 and 9,000, respectively.

Outside healthcare, most sectors remain largely stagnant or are shedding jobs. Employment in information has declined gradually since early 2023, following a period of over-hiring during the post-pandemic boom, while professional and business services have now recorded job losses for three consecutive months. While it is possible that some of the layoffs in these sectors are AI-related, this is far from certain. Global economic uncertainty, high interest rates, and rising energy prices are also major headwinds.

Is AI carrying the labor market?

The pockets of the labor market that still show strength are being supported by AI, though perhaps not in the way many would expect. The data-center construction boom is now providing meaningful support to the economy. We already had evidence that the surge in investment was boosting GDP, but now it’s also showing up in the labor market. Construction, typically a sector that suffers quite a lot from rising interest rates, has actually been adding jobs at a stable rate in recent months (around 15,000 on a 3-month moving basis).

Manufacturing is showing similar signs of resilience even as tariffs continue to be a drag on the sector. Manufacturing companies have seen a remarkable increase recently, and the rebound is now also translating into stronger hiring demand, with the sector adding close to 15,000 jobs monthly over the last quarter.

Looking at Indeed job postings, one can see how manufacturing has experienced a recent surge in job vacancies, far exceeding the rest of the market.

When digging deeper into recent employment trends, it becomes clear to what extent the AI boom has been supporting the labor market over the last couple of years. Architectural and engineering services, utilities, and nonresidential construction are all pockets of the labor market that have seen an employment boom. All these sectors are benefiting from the construction of data centers and related infrastructure — including power generation and the electricity grid — around the country.

Unemployment ticked up slightly, but so did labor force participation

While the unemployment rate ticked up marginally to 4.2%, it remains historically low. This minor move shouldn’t be a great concern, especially since it was paired with an increase in labor force participation.

After dipping during the summer, the prime-age participation rate increased to 83.7%, meaning that it’s edging closer to its all-time high in recent decades (around 84%). Though hiring isn’t very strong across sectors, most workers have a job and very few are unemployed. The economy remains at full employment even as worker churn (job-to-job transitions) are noticeably lower than just a couple of years ago.

One piece of bad news for workers is that average hourly earnings have dipped to just under 3.3%. With inflation running higher, real wage growth has been in negative territory in recent months. And as oil prices are not expected to come down any time soon, this is unlikely to change by year-end.

What does this mean for recruiters?

The big picture is that healthcare remains a source of job growth, although momentum is slowing. This leaves the AI infrastructure buildout as the labor market’s only other major tailwind. Hiring in construction and manufacturing has accelerated as investment in data centers and related infrastructure has surged. But beyond these two sources of strength, the overall outlook for job growth remains lackluster.

Photo credit: Bill Mead

How will AI reshape our economies? What will the future hold for workers, and which occupations will continue to grow in the coming decade? Everybody is asking these questions right now, but nobody has the definitive answer. Researchers around the world are investigating AI’s impact on the labor market. For now, we don’t know for sure whether AI is destroying or creating jobs in aggregate.

In a previous piece, we used the occupational employment projections from the Bureau of Labor Statistics (BLS) to show that there is no correlation between high AI exposure and future employment growth. In other words, BLS researchers do not expect AI-exposed occupations to grow any faster — or slower — than the rest of the labor market. But what exactly are the occupations that will grow the fastest in the coming decade? In this piece, we will reveal the sectors and occupations that are projected to gain the most, and what that means for future job seekers.

It’s basically healthcare (and professional services)

Total employment between 2025 and 2035 is expected to grow by about 5.9 million, a mere 3.5%. That is significantly slower than in previous decades, and the reason is mainly demographics: lower immigration together with an aging workforce. The sectors driving most of the job growth are healthcare (+2.2 million), professional services (+930,000), accommodation and food services (+610,000), and construction (+410,000). While utilities and tech (information) are two of the fastest-growing sectors — +9.8% and +5.3%, respectively — they are a much smaller slice of total employment. Therefore, their total contribution to future job growth is less significant.

The fast growth in utilities makes sense. The current AI boom requires massive investment in power generation and grid infrastructure because new data centers consume vast amounts of energy. Furthermore, the push toward a greener economy means more investment in renewables. All of this points to expanding employment in the utility sector.

Healthcare needs are rising for two reasons: as people get richer and older, they will consume more healthcare services. And as the economy grows, construction and hospitality expand as well, especially since these are two sectors that have very little AI exposure: most jobs require a physical presence (think of waiters, baristas, and construction workers).

The anticipated employment boom in professional services and tech is one of the more interesting projections. For now, BLS researchers do not foresee any substantial job displacement coming from AI in those two sectors. Instead, they actually think that employment growth will outperform the national average quite handsomely (by a factor of almost two-and-a-half in the case of professional services). While there is no doubt that AI might lead to the shrinkage of some occupations, labor demand for the two sectors as a whole is expected to grow.

The future of jobs — nurses, therapists, solar installers, and data scientists

So, of the 831 distinct occupations that the BLS produces projections for, which jobs are expected to grow the most?

Nurses, therapists, epidemiologists, health counselors, care aides, medical technicians, and hearing aid specialists are among the highest-ranking healthcare roles. For professional services, we have data and computer scientists, computer and information systems managers, and information security analysts — apparently, the BLS shares our belief that cybercrime will become even more of an issue due to AI. Finally, fueled by the boom in renewables, two skilled trades also feature high on the list: solar photovoltaic installers and wind turbine service technicians, ranked second and fourth, respectively.

In case you didn’t count, 18 of the 30 fastest-growing occupations are in healthcare or healthcare-adjacent fields. They will also be the biggest source of employment growth, with care aides and nurses alone adding almost one million jobs over the coming decade. Only four occupations are in professional services, and three are in skilled trades. The 18 healthcare professions will grow by about 1.5 million jobs, while the four occupations in professional services will grow by only about 250,000. The three skilled trades occupations will add fewer than 100,000 jobs by 2035.

Among the fastest-growing occupations in the U.S., job growth is clearly divided along pay lines. The volume is in healthcare: These 18 occupations account for more than a quarter of all U.S. job growth, and care aides alone make up more than half of that. But care aides earn a median salary of just $36,000, by far the lowest-paying occupation, while the typical healthcare occupation on our list pays almost twice as much (about $70,000). The money is in tech: barely 250,000 additional jobs, but at an average pay of $154,000. Meanwhile, across the three skilled trade roles, pay runs at about $64,000. By comparison, the median annual wage for all U.S. workers is about $50,000.

The growth story: physical workers and AI jobs

The BLS employment projections show that the growth story runs along two distinct segments: physical workers and skilled AI workers. In fact, this is very much in line with what we speculated might happen as AI gets increasingly deployed in the economy. The physical sector consists of all jobs that require a physical presence. These are the healthcare, hospitality, and construction roles discussed above. As the economy grows thanks to AI, demand for these services goes up, and so does future job growth. Skilled AI workers are complementary to the technology and benefit from its rollout. Routine white-collar workers, on the other hand, make up the large segment that struggles as AI is deployed to automate tasks and displace workers. While this three-tier labor market is not the only future one can imagine, we believe that current trends are shaping up to produce this outcome. And the BLS forecasts appear to support this view.

What does this mean for recruiters?

We are currently witnessing the fastest pace of technological progress in decades, making future projections about occupational job growth more uncertain than before. Nevertheless, BLS forecasts have historically been a relatively good guide to where the labor market is headed, and they are consistent with our own views.

The fastest-growing jobs probably hold some surprises. With healthcare dominating the list, tomorrow’s labor market will look like today’s: recruiters will face persistent worker shortages and fierce competition for healthcare workers, putting upward pressure on pay. Skilled trades workers, especially those in renewables, might also be hard to come by as demand surges. The big surprise is probably professional services. Instead of AI displacing workers, skilled AI roles are projected to grow disproportionately. As the supply of talent fails to keep up, recruiters will struggle to fill some of these vacancies, while compensation climbs. The weakness will be in routine white-collar roles, where much of the work could be automated.

Here are all the articles that we published in September. Keep reading for data releases coming up next month and other interesting economic news and labor market insights.

Upcoming Economic Data Releases and Events

• October 2: US Employment Situation Report

• October 14: US CPI

• October 15: UK GDP (monthly estimate, August 2026)

• October 16: Eurozone CPI (final September reading)

• October 20: UK Labour Market Overview

• October 21: UK CPI

• October 29: US GDP (advance estimate, Q3 2026)

• October 30: Eurozone GDP (preliminary flash estimate, Q3 2026)

In recent news:

Julius Probst, PhD

US economic activity accelerates to five-year high

Less than two months ago, we argued that the Federal Reserve is underestimating the strength of America’s economy. While many analysts attributed the rise in inflation to the oil shock, there were already signs earlier this year that the U.S. economy was also experiencing an increase in economy-wide spending. Although oil prices were clearly contributing to inflation, so was the acceleration in demand. More recent economic data releases have now vindicated this view: The latest labor market data shows that employment in the U.S. grew significantly faster than expected during the summer, with the six-month moving average of job growth accelerating to just over 100,000. More importantly, the composite PMI (Purchasing Managers’ Index) — a monthly indicator of economic activity — surged to 58 in September, its highest value since July 2021. One value does not yet make a trend, but the gradual rise began in the spring. The data now seems to indicate that the economy is currently as hot as it was during the post-pandemic recovery.

As we have pointed out before, there is increasing evidence that the AI economy is leading to a strengthening of economic activity, especially in the service sector. Tech and professional business services are benefiting the most as demand for their offerings is rising at the same time as worker productivity is increasing.

What is interesting, though, is that manufacturing is booming, too. The AI data center buildout is creating a surge in demand for construction equipment, power and cooling equipment, AI chips, and semiconductors. The manufacturing sector is thus one of the main beneficiaries of the approximately $1 trillion in capital expenditures on the AI economy, including data center construction across the country. Manufacturing PMI numbers not only show a surge in new orders and economic activity, but the employment PMI is now finally in positive territory again. This is another data point that confirms the gradual tightening of the labor market as the AI boom unfolds.

Growth in the Eurozone more robust than anticipated

The oil price shock was expected to significantly reduce growth in all Eurozone countries. Even as it is a clear negative, growth is holding up much better than expected, with economic momentum actually accelerating. As in the U.S., the AI boom probably plays a role while the Eurozone’s biggest economy — Germany — is benefiting from a more favorable export environment together with a surge in fiscal spending.

While employment conditions remain more favorable in Southern Europe, where growth is significantly stronger, a sentiment indicator for employment expectations shows a remarkable surge in Germany and for the entire Eurozone in recent months. It is therefore quite possible that hiring might accelerate slightly in the coming quarters despite the global headwinds.

Global interest rates are set to rise again

One trend to look out for: rising interest rates. The combination of higher inflationary pressures and stronger economic momentum inevitably means that central banks will have to hike interest rates as inflation continues to drift away from their targets.

The Fed and the European Central Bank (ECB) already hiked once in recent weeks, with the Bank of England (BoE) being on hold for now. However, financial markets expect that there will be several more interest rate hikes in the pipeline between now and early 2027: Today’s market prices suggest three for the U.S. and at least as many for the Eurozone. While needed to bring down inflation, higher interest rates could be problematic for consumers, the housing market, corporate borrowing, and even government finances. With public debt burdens at their highest level in decades and housing markets stretched as they are, central banks might need to be careful not to break things. Watch out!

Photo credit: Igor Omilaev

There is no doubt that AI has started to change the labor market — though sometimes in unexpected ways. So far, the bigger economic impact has come through the data center construction boom, which has mainly benefited skilled blue-collar workers. While AI’s effect on white-collar sectors has been more limited than many predicted, that might be about to change. Worker productivity in tech and in professional services is accelerating. The big questions that everybody is asking right now: What will happen to the jobs most exposed to AI? Will we see rapid worker displacement for certain occupations, and can AI create job opportunities elsewhere?

To answer these questions, we analyzed the occupational employment projections from the Bureau of Labor Statistics (BLS). As is often the case with technological change, AI’s impact on the economy is multifaceted. It will take years for the technology to significantly transform the labor market. The somewhat boring but hopefully reassuring finding is that the jobs with the highest AI exposure are not projected to grow any slower or faster than the rest.

How the BLS measures AI exposure

The BLS has published forecasts for occupational employment growth for decades. Its latest iteration is a projection from 2025 to 2035. For the first time, BLS researchers also produced a measure of AI exposure for every occupation. In general, one can distinguish between “theoretical exposure” and “observed exposure”: the former asks to what extent large language models can reduce the time spent on occupational tasks, while the latter measures actual AI usage within a certain occupation based on Claude or Copilot data.

Combining five sources, BLS researchers sorted 831 occupations into four AI exposure categories:

• Low

• Moderate

• High

• Very high

AI exposure is positively correlated with earnings

The typical occupation in the very high exposure category pays a median wage of around $78,000, a striking 60% higher than in the low exposure category. The difference shrinks slightly when using averages, but the overall pattern holds: occupations with higher AI exposure pay significantly better. This is not surprising. Well-paid white-collar roles in marketing, digital advertising, tech, and finance are the ones where many tasks can be automated by AI. These jobs also typically require a bachelor's degree or higher, and college education has historically commanded a strong wage premium, especially in the U.S. While there is some evidence that this premium is now shrinking, higher education is still closely linked to earnings, which helps explain the positive relationship between AI exposure and pay.

Healthcare is an outlier when it comes to AI exposure and pay. These roles typically require a physical presence — think of dentists and nurses. At the same time, lengthy education requirements restrict worker supply, while the demand for healthcare is only going up. As a result, healthcare jobs command a wage premium relative to many other occupations with low AI exposure.

Future employment growth is uncorrelated with AI exposure

While wages are correlated with AI exposure, projected employment growth is not. Occupations with low AI exposure are expected to grow slightly slower than the rest. Moderate and high exposure jobs have the highest projected employment growth. Across 831 occupations, there is no relationship between a job’s AI exposure and whether it will grow or shrink.

The very high AI exposure category has several rapidly shrinking occupations (typists and switchboard operators) alongside others growing fast (data scientists). However, the dispersion within that category is no higher than elsewhere. Occupations at the low end of the exposure scale are just as likely to move sharply in one direction or the other — so whatever is pulling jobs apart in terms of future growth, AI exposure doesn’t seem to be the cause.

Well-paid jobs are expected to grow faster, especially those with very high AI exposure

Our analysis also reveals a positive correlation between median salary and employment growth when we group occupations by AI exposure. Among the most AI-exposed occupations, projected employment growth rises more steeply with pay: Each doubling of the median wage is associated with roughly 8 percentage points of additional growth. The relationship is much weaker in the other exposure categories. Instead of being an equalizer, AI might thus exacerbate inequality, at least within white-collar sectors, since workers in well-paid occupations benefit most from expanding employment opportunities.

How good is the BLS at forecasting?

If its projections haven’t historically been accurate, our entire analysis above might be moot. Here is what the data shows: Previous rounds have held up reasonably well, narrowly outperforming simple benchmark models. For 2008-2018, the BLS correctly predicted whether an occupation would grow or shrink about 78% of the time. Earlier evaluations also measured the error for individual occupations: For 1996-2006, projected employment levels were off by roughly 15% on average. That might not sound particularly accurate, but forecasting ten years of change across hundreds of occupations is hard, and some misses can be large: Camera and photographic equipment repairers were expected to grow 24% and instead shrank 69%. The takeaway is that BLS projections are a solid guide to broader labor market trends but might be less reliable for the fate of any single occupation.

Why AI isn’t displacing jobs: It’s automating tasks

Software developers are a good example of how AI is changing tasks instead of displacing jobs. Defying some gloomy predictions, job postings for senior software developers have recently outperformed the market. AI can automate much of the coding, but coding itself was never the biggest bottleneck. Software developers now need to spend more time on oversight and decision-making as well as delivering work to stakeholders, whether customers or managers — all of which are more senior tasks. This helps explain both why the job hasn’t been automated and how it has changed to the detriment of junior workers, who haven’t yet acquired many of these skills.

What does this mean for recruiters?

It certainly looks like we’re on the cusp of a major technological transformation, but BLS researchers do not expect jobs with high AI exposure to grow any slower or faster than the rest through 2035. This is in line with other research, which remains mixed: While some studies have found that AI has started to displace workers in certain occupations, others have reached the opposite conclusion.

How AI will affect inequality is even harder to estimate. Large wage gains in blue-collar roles have reduced wage dispersion, but skilled AI workers are seeing their compensation soar, with AI companies rivaling investment banks on pay. The BLS also projects that among occupations with very high AI exposure, well-paid jobs will grow faster, so workers at the lower end of the pay spectrum might lose out.

For recruiters, this means AI exposure alone is a poor guide to where hiring demand is heading. As AI absorbs routine execution, employers will increasingly screen for judgment, oversight, and stakeholder skills, making it harder for junior candidates to get a foot in the door. Software development, where senior roles are thriving while junior workers struggle, is a case in point.

Monthly GDP data is coming in hot

The U.K.’s monthly GDP figures continue to exceed expectations. While monthly data always need to be taken with a grain of salt, the direction of travel is clear: Economic output is going up despite soaring commodity prices as the war with Iran drags on. On an annualized basis, the economy has grown at a rate of more than 2% in the first seven months of 2026 — about three times as fast as economists expected earlier this year. Even though the oil shock will be a drag in the second half, this year’s GDP figure will be far more robust than most of us anticipated.

The reason is pretty straightforward: almost all of the growth is coming from services, with tech and professional business services contributing the most, precisely the two sectors where one would expect AI to have the largest impact. With other countries like the U.S. experiencing a similar productivity boost in high-value-added services, it is becoming increasingly evident that AI has started to affect growth at the macroeconomic level.

Payroll employment continues its downward trend

Despite the positive growth numbers, employment conditions continue to deteriorate. The U.K. lost another 26,000 payroll jobs in August, bringing the cumulative loss since early 2024 to about 220,000.

While it’s easy to make a connection to current trends around artificial intelligence, AI is not the culprit. The sectors that have lost the most jobs are predominantly those with relatively little AI exposure: wholesale and retail, accommodation and food services, and manufacturing. Information and communication is the one notable exception.

As we have previously documented, domestic policy choices — the successive large minimum wage increases paired with employer tax hikes — have created a hostile business environment for employers. This is especially true for some of the low-wage sectors mentioned above. The oil shock caused by the Iran war has added to the pressure, with retail and hospitality suffering from the decline in consumer spending, while manufacturing and construction are being squeezed by higher interest rates. The result has been a continued worsening of the employment outlook, driven by job losses in sectors that have nothing to do with AI.

The unemployment rate remains steady, while labor demand keeps falling

The unemployment rate remains stuck around 4.9%. While the good news is that there hasn’t been any further deterioration since 2025, the bad news is that there remain some concerns about the accuracy of the data itself. The Office for National Statistics (ONS) is currently improving its methodology as response rates to the household survey have fallen significantly in recent years, but the release of the updated survey has been pushed out to 2027. For now, the payroll employment data provides a more accurate signal of where the labor market is headed in real time, even though that data has other drawbacks: it doesn’t capture trends in self-employment, for example.

Vacancies continue to decline marginally and stand at about 700,000. From a hiring perspective, this is the weakest labor market since 2014, with the exception of a brief spell during the pandemic.

The debt burden leaves Burnham little room to maneuver

While the growth figures are a clear positive for the new Burnham government, the employment losses will be in the spotlight. The government will face various demands to improve the labor market outlook, especially for young people, who are currently bearing the brunt. There is just one problem. The U.K. is severely constrained by its public debt burden. The government’s interest expenses have soared due to the toxic combination of high debt and rising interest rates, now exceeding £100 billion annually. This is more than the entire defense budget, and well over half of annual NHS spending.

Many policies that Burnham wants to pursue — higher infrastructure spending, nationalization of public utilities, education and reskilling programs aimed at the labor market — will be infeasible in the short term, given the country’s debt trajectory. Meanwhile, hiking taxes substantially is not an option either, because it would harm economic growth. We will find out more at the end of next month, when Chancellor John Healey delivers the Budget, but one thing is certain: Labour needs to tread carefully so as not to worsen the U.K.’s fiscal and economic situation.

What does this mean for recruiters?

Growth is up, but employment is down. That seems puzzling at first, but it makes sense in the current economic environment. AI is boosting output in tech and professional business services. Meanwhile, many other sectors are suffering from domestic policy mistakes and the oil shock. For recruiters, this implies a highly segmented labor market. Filling roles in many sectors has become significantly easier, though the sheer inflow of applicants that recruiters need to deal with is a challenge in its own right. But there are also several pockets of the labor market that are extraordinarily tight. Workers with AI skills are in high demand, while supply is not keeping up and compensation is surging as a result. Blue-collar workers in infrastructure roles tied to the data center construction boom have good prospects too. For recruiters, that means the hard part is no longer filling roles — it’s competing for the few candidates everyone else wants.

Photo credit: Yannic Kreß

Following roughly two decades of ultra-conservative fiscal policy, Chancellor Friedrich Merz decided in early 2025 that the threats of this decade were serious enough to warrant a complete U-turn: a massive fiscal stimulus was announced — the “Sondervermögen,” loosely translated as “special fund.” Some €500 billion was set aside for investments in infrastructure and renewable energy, and defense spending was exempted from the constitutional debt brake. While the sums involved were of unprecedented scale, Germany’s economy continued to stagnate throughout 2025. The key constraint: the funds were deployed at a slower pace than expected due to bureaucratic hurdles. However, economic figures for this year are signaling that the German economy is finally accelerating. This also has implications for the labor market. The demand for workers in certain industries — defense, aerospace, construction, and energy — is rising rapidly, putting further pressure on employers filling specialist roles.

Revised data shows German growth accelerating

Germany’s economy was supposedly stagnant throughout 2025, and this year’s oil shock and shipping disruptions due to low water levels on the Rhine added to the concern that an economic revival would remain elusive. However, data revisions released in August show that the economy has performed slightly better since 2024 than earlier estimates indicated. The revised figures imply that first-quarter GDP this year was about 0.7% higher than previously thought.

Looking at GDP contributions, one can see how fiscal policy is doing the heavy lifting. Since the second quarter of 2025, Germany’s economy has grown at an average quarterly rate of just 0.2% (about 0.8% annualized growth) — and of that, government consumption has contributed about 0.18 percentage points per quarter. In other words, the vast majority of Germany’s already modest growth over the last five quarters has come from fiscal spending, with net exports supplying most of the rest. The bright spot is the trajectory: on an annualized basis, economic growth has accelerated from roughly 0.5% in the second half of 2025 to about 1.5% in the first half of 2026.

As a result, updated growth projections now expect that the economy will expand by about 1.1% in 2026, followed by 1.5% in 2027. A study by the Bundesbank, Germany’s central bank, estimates that about 0.44 percentage points this year, and slightly more next year, will come from government spending on defense and infrastructure — roughly 40% of the total. That may well understate the fiscal contribution, since higher government spending can also boost private sector confidence and therefore stimulate additional business investment and consumer spending.

The fiscal boost is showing up in defense and infrastructure

Within half a decade, Germany’s military spending roughly doubled from less than €50 billion in 2019 to about €100 billion last year, with projections showing a further increase to about €144 billion by 2027. The rearmament has catapulted Germany to become the biggest military spender in Western Europe, and the fourth largest in the world.

Of course, higher military spending does not always translate into increased economic activity. Buying American fighter jets would do nothing for German production. But Germany’s defense industry on its own is large enough to fulfill a significant share of the arms orders the German armed forces require in the years to come.

On top of higher defense commitments, there is a noticeable increase in infrastructure spending that is being funneled into the German economy. After more than 15 years of underinvestment, funding for rail infrastructure surged from about €10 billion in 2023 to just under €20 billion in 2025. Total federal investment is projected to double between 2024 and 2026 from less than €60 billion to about €126 billion, with the special funds for infrastructure and climate accounting for more than half of that total.

Note: Figures include financial transactions (e.g. rail equity and loans) that count as investment under budget law but aren't real fixed investment — most notably inflating 2025.

Manufacturing orders are bouncing back

Another positive trend: Germany’s exports are finally gaining momentum again. For the first time since early 2024, trade is set to make a positive contribution to annual GDP growth. The industrial sector, specifically, is benefiting from a more supportive global business environment as the AI investment boom lifts growth around the world. Manufacturing orders are increasing as the demand for German products picks up, especially in fast-growing Eastern European economies. As a result, Germany’s manufacturing PMI (Purchasing Managers’ Index) has risen to its highest level in more than four years.

The rise of the far-right should be a genuine concern

Just as fiscal spending finally revives growth, political instability is deepening. The Alternative für Deutschland (AfD) just won the state election in Saxony-Anhalt and will likely govern there, which would mark the first time since World War II that a far-right party has held power. Even though the state just has 2.1 million people, the political fallout is substantial and could threaten the current economic recovery. Germany’s boom is running straight into a wall of worker shortages, which can only be filled with skilled immigration. The AfD’s defining policy is not just to slam that door shut, but to push migrants back out. The party is also opposed to the very debt-financed stimulus now supporting growth. A stronger far right raises questions about whether Merz’s reform packages and fiscal continuity will survive. Add the AfD’s sympathies for Putin, its Euroskepticism, and the reputational risk of doing business in a state it governs, and you get exactly the kind of uncertainty that makes firms hesitant to hire and invest. In other words, the political headwind might start canceling out the fiscal boost right when Germany can least afford it.

What does this mean for recruiters?

Broadly speaking, the German labor market remains sluggish after more than five years of stagnation. However, there are signs of economic revival as growth is picking up. More importantly, LinkedIn’s hiring indicator has recently risen above its long-term trend, a first since early 2024.

The surge in public investment is already heating up specific pockets of the labor market. The money is flowing overwhelmingly into skilled trades tied to construction, energy, and defense, which are precisely the occupations where shortages are most acute. Expect intensifying competition, upward wage pressure, and longer time-to-fill in exactly those segments, even as the wider labor market recovers more slowly.

The winners will be recruiters who move early and build talent pipelines in skilled trades before the demand wave fully lands. That means leaning harder into apprenticeships and reskilling, retention over replacement, and international sourcing because domestic supply can’t cover the gap. However, the AfD is the political wildcard that cuts right through this strategy: labor shortages will become even more entrenched if immigration tightens under a stronger far right.

Photo credit: Alex Kotliarskyi

The U.S. labor market is showing some unexpected strength at the end of the summer, adding some 162,000 jobs in August. That number is nearly three times what economists expected (55,000). Moreover, positive data revisions added another 55,000 jobs to the two prior months, while the unemployment rate remained low. Simply put, this is a good jobs report, and it changes the employment picture: from a sluggish labor market this summer to one that has suddenly outperformed expectations by quite a bit. The six-month moving average of job growth is at 106,000, which is the highest in over two years. It also shows the importance of not putting too much weight on any single data point since later data revisions often reveal new information.

Industry Breakdown

Leisure and hospitality was one of the big drivers of this month’s surprisingly good report, adding more than 62,000 jobs after underperforming earlier this summer despite the World Cup taking place. Healthcare and social assistance added 28,000 jobs, followed by 22,000 in construction and 16,000 in manufacturing.

One sector that continues to underperform is information and communication, which lost another 23,000 jobs. It remains unclear to what extent AI is driving this adverse trend. Professional business services, the other sector considered to have high AI exposure, added some 10,000 jobs in August.

Construction delivered an upside surprise. Even as interest rates have been heading higher — typically a headwind for the sector — employment growth has been picking up in recent months, with 22,000 jobs added in August. It is pretty clear what’s driving this: the sector is riding the data center boom, which is now large enough to show up in the GDP figures. Data center construction is also creating very tight regional labor markets in the parts of the country where this infrastructure investment is taking place.

Another surprise: healthcare, normally the engine of job growth, lost some momentum, adding just 13,000 jobs. Employment in nursing and residential care facilities even declined.

Local government education rebounded with 42,000 jobs, reversing the sharp decline in July and confirming suspicions that recent volatility is a seasonal distortion — the regular rise and fall of public-school payrolls during the summer.

Unemployment steady while wages run below inflation

The unemployment rate remained low at 4.1%, unchanged from the previous two months. As a result, worries about the labor market that emerged last fall have clearly subsided.

The prime-age labor force participation rate ticked up to 83.4%, but remains noticeably lower than earlier this spring. This is the only figure in the jobs report that gives any real cause for concern. There is, however, the possibility that the dip is just a weird data error, driven by seasonal adjustment factors or other statistical quirks. Or perhaps the Trump administration's tighter immigration policies are shrinking the pool of foreign-born workers, who tend to have higher participation rates.

Wage growth showed little change, with average hourly earnings for frontline workers (non-managers) growing at a rate of 3.3%. Given the recent acceleration in inflation due to the oil price shock, real wage growth is now negative. This is obviously bad news for workers. But given the strong job numbers, this will not really change the outlook for the Federal Reserve: Monetary policymakers will now, in all likelihood, raise interest rates in September, as inflation measures show rising price pressures and the labor market data has substantially surprised on the upside.

What the preliminary benchmark report is telling us about the labor market

The monthly payroll numbers we discuss on each jobs day come from a survey of roughly 121,000 businesses. Over time, the survey might drift away from the true state of the labor market. That is why, once a year, the Bureau of Labor Statistics (BLS) checks its homework against unemployment insurance tax records covering nearly every employer in the country.

This year’s preliminary benchmark report, released on August 28, was refreshingly boring. Total employment in the year through March 2026 was revised down by 79,000, or 0.1% — far smaller than the revisions in previous years: 860,000 in 2025 and 600,000 in 2024.

The story gets more interesting at the sectoral level. The pattern of revision tells a slightly different story from the monthly employment data: Information was revised up by 87,000 jobs, or 3% — the largest percentage gain of any sector. Construction was revised up by 62,000, financial activities by 85,000, and transportation and warehousing by a striking 135,100. The offsets were concentrated in goods handling and consumer-facing work: retail trade was revised down by 154,600, wholesale trade by 86,200, and manufacturing by 67,000. Keep in mind, though, that these revisions will not be incorporated into the monthly jobs data until February next year.

What does this mean for recruiters?

The August job numbers surprised on the upside, with various sectors outperforming expectations: hospitality, construction, and manufacturing, to name just a few. The combination of above-target inflation and surprisingly resilient employment growth means the Federal Reserve will very likely raise rates this fall.

While the tech sector continues to shed jobs, keep in mind that this data is subject to revisions, which could reshape the story later — sometimes substantially. The preliminary benchmark estimates released last week suggest that some sectors were performing better than the monthly reports indicated in the year through March 2026. In other words, the parts of the economy we’ve been telling you were struggling — white-collar tech hiring, construction under high interest rates — have been creating more jobs than the initial data suggested, while the weakness in retail was deeper than we thought.

For recruiters, this doesn’t exactly reshuffle the entire hiring landscape, but it does change the picture. If construction employment has been understated, the talent pool in that field is even tighter than the monthly jobs data suggested. The upward revision to transportation and warehousing is the one to watch heading into peak season: competition for warehouse labor is likely to be stiffer this fall. Retail is the mirror image, with a larger pool of available candidates than the headline numbers imply.

Here are all the pieces that we published in August. 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

• · September 4: US Employment Situation Report

• · September 7: Eurozone GDP (regular estimate, Q2 2026) and employment data

• · September 11: US CPI

• · September 11: UK GDP (monthly estimate, July 2026)

• · September 15: UK Labour Market Overview

• · September 15: Eurozone vacancy statistics (Q2 2026)

• · September 16: UK CPI

• · September 17: Eurozone CPI (final August reading)

In recent news:

Julius Probst, PhD

AI is reshaping labor markets in unexpected ways

While the most obvious aspect of the AI boom is software — chatbots, copilots, and agents — its largest economic footprint right now is physical. The technology built to automate knowledge work is, first and foremost, one of the biggest capital-investment programs in modern history. The numbers are hard to overstate. Just four companies (Amazon, Alphabet, Microsoft, and Meta) are on track to spend north of $700 billion on capital expenditure globally this year, roughly seven times their combined outlay five years ago.

A large share of this money flows into the US economy. At 1.6% of GDP, AI-related capital spending has now surpassed the peak of the late-1990s telecom boom. The spending spree in the U.S. is also starting to show up in the labor market data, and the occupations benefiting the most aren’t the ones the AI narrative would predict. There is a significant surge in demand for construction workers, electricians, HVAC technicians, and pipefitters who build and power the facilities. Lightcast postings data across eleven construction and skilled-trade occupations shows a hiring wave that began in early 2025 and is still accelerating: Unique postings in those occupations climbed from roughly 40,700 in January 2025 to an all-time high of 57,670 in June 2026, a 42% jump.

The imbalance in AI infrastructure spending is dwarfed by an even starker one in the private capital that funds AI companies in the first place. Venture money, unrelated to the infrastructure build-out mentioned above, is pouring into AI startups at an unprecedented rate. And again, America is leading. In 2025, the U.S. attracted $194 billion in AI venture capital, more than twelve times the EU’s $15.8 billion. The U.K., despite an economy roughly a sixth the size of the EU’s, matched the EU’s entire AI venture capital inflow almost dollar for dollar ($13.8 billion versus $15.8 billion). This is a striking illustration of how the Anglosphere is dominating the current technological supercycle. The AI business ecosystem is mainly being built in the U.S. — and, to a lesser extent, the U.K. — where startups and technology companies benefit from the deep financial networks of large American cities and London.

The obvious follow-up question is whether our economies will benefit from this surge in AI investment in the long run, or whether it’s just a lot of money poured down the drain. While it is a little too early to be certain, there are some tentative signs that AI is starting to increase worker productivity. The U.K. — long known for suffering from two decades of subpar economic growth — is experiencing a small productivity revival, according to some preliminary data. And it’s showing up in exactly the parts of the economy where we would expect artificial intelligence to have an impact: the tech sector and professional business services. Since 2019, output per hour worked has increased by 40% in tech and by 16.5% in professional business services (5.15% and 2.3% annualized growth, respectively). This has been sufficient to boost growth in the U.K. even as the economy faces several other headwinds (the oil price shock and elevated global uncertainty, among others). If these rates can be sustained thanks to faster AI adoption, living standards could finally start improving again. That would be welcome news, and further evidence that the AI investment boom is translating into real economic gains.

Photo credit: Joe Cleary

The U.K.’s new Prime Minister Andy Burnham, former mayor of Manchester, believes that the city can serve as a role model for the U.K. economy. And he is probably right. Greater Manchester has been one of the rare economic bright spots in the U.K., with the metropolitan area being the one place rivaling London in terms of growth and job creation.

But what exactly is Manchester’s success built on? It is crucial to draw the right lessons from the city’s growth and not be misled by false narratives that are not borne out by reality. Specifically, the nostalgia for manufacturing jobs as a source of strength rests on a faulty belief about the sector’s importance. Instead, Manchester has thrived thanks to professional business services, which are today’s main driver of economic growth.

Manufacturing is not making a comeback

Even today, a widely shared belief persists that manufacturing jobs could return if only sufficient public support were provided. Alas, nothing could be further from the truth! While politicians can score cheap points by protecting certain well-paid manufacturing jobs, the industries in question are simply not that important anymore. Manufacturing’s employment share in the economy has fallen from 30% in the 1970s to less than 8% today. Outsourcing to where production is cheaper — Southeast Asia — has certainly played a role, but the bigger contributor has been technological change. The sector has enjoyed high productivity growth for decades, with automation on assembly lines being the biggest culprit of labor displacement.

Instead, service industries have taken over as the engine of job creation across advanced economies. Technology, professional business services, finance, and real estate have been the key wealth creators for decades, providing workers with well-paid jobs, for the most part.

That is not to say that some regions haven’t suffered disproportionately from the decline of industrial production. Workers in the Midlands, with Birmingham once at the heart of the Industrial Revolution, have seen their employment prospects deteriorate as manufacturing jobs disappeared. But the clock cannot be turned back. It’s better to focus on the sectors creating wealth today rather than to dwell on the past.

Manchester’s success story

Data from the Office for National Statistics (ONS) shows a clear pattern of regional disparities within the U.K. Economic activity in London has grown significantly faster than in most other large metropolitan areas over the last two decades — and it isn’t even close. There is but one exception: Manchester’s economy has grown even faster.

When we look at payroll job growth since 2015, roughly when the data started, Manchester comes out as the clear winner again. Local payroll employment has grown by a stunning 30% over the last decade, more than 2.5 times the national average. London’s growth, constrained by the local housing market, has only been 15%, with many other British cities performing similarly or worse.

What sectors have created jobs?

Which sectors have contributed to Greater Manchester’s success story? The ONS regional employment statistics tell a similar story. Manufacturing jobs continue to dwindle, with employment down by about 10% since 2015. The two industries driving job growth are the tech sector (up by about 25%) and professional business services (up by 55%). Those two sectors now employ about 60,000 and 160,000 workers, respectively, compared with 96,000 in manufacturing. Finance accounts for another 45,000 jobs, but its growth has been more muted.

Like it or not, professional business services are the real engine of wealth creation in today’s economy. With its English-speaking, highly skilled workforce, the U.K. has a comparative advantage in service exports — consulting work, tech, and financial services provided to customers abroad. In fact, the U.K.’s services share of exports, at about 59%, is roughly twice as high as that of most other advanced economies. It is no exaggeration to say that the U.K. is a service export superpower, with those sectors driving economic growth.

Manchester is well placed to benefit from the boom. It has good universities and a large skilled workforce, more competitive wages than London, and an office and housing boom that accommodates rather than constrains the local economy. Big employers are taking notice. The global bank BNY plans to expand its office in the city where it already employs 2,000 people. And it is not just finance and tech. International law firms are also increasing their footprint. Lightcast data shows how Manchester’s employment for four different white-collar occupations — lawyers, financial analysts, software developers, and recruiters — is far higher than the national average. The gap has widened over time and is projected to grow further by 2030.

The creation of the Manchester Digital Campus, a government hub with a focus on digital work, together with Burnham’s decision to create a regional office for the Prime Minister (“No. 10 North”), should help solidify the city’s appeal as an attractive alternative to London.

What about housing?

Manchester’s economic growth has been made possible by faster housing construction. Data from the ONS shows that housing completions in what I will call “Inner Manchester” — the boroughs of Manchester, Salford, and Trafford — rose almost fourfold between 2015 and 2021, from around 1,500 homes a year to 5,600, before falling back sharply. Housing completions in the 12 inner boroughs of London, on the other hand, have steadily declined over the last decade.

The difference is even starker when adjusting for population levels. Housing completions per 1,000 residents in Inner Manchester peaked at 5.3 in 2021/22, while in Inner London they have hovered between 2 and 3. But the chart below also illustrates something else. Manchester’s growth story is very much contained in the city center. Housing completions in Greater Manchester (10 boroughs) have not exceeded those of Greater London (33 boroughs). Burnham can rightly speak about his city’s success in building housing. However, construction in the greater metropolitan area has been just as weak as in the rest of England. And last decade’s boom in the city center has now also come to a stop. The combination of high interest rates, surging construction costs, and regulatory overdrive has hammered housing development.

What does this mean for recruiters?

Contrary to the popular narrative, Manchester’s economic success proves two things. First, building plenty of houses is key for a city to prosper. And no, England is not running out of room anytime soon. Second, the city’s growth has been fueled by professional business services — tech, consulting, law, and finance jobs — rather than blue-collar work. Many companies are eyeing the North as a viable alternative to costly London. Greater Manchester has a deep labor market with plenty of skilled workers. For recruiters, this means that talent attraction could become both easier and cheaper: being in London is no longer necessary for companies to thrive in the U.K. Burnham seems to agree.

Photo credit: GR Stocks

There should be little doubt by now that AI will change our economies and labor markets in a fundamental way. The investment boom is already having a macroeconomic impact, with major U.S. tech companies plowing more than $1 trillion dollars into data centers. Labor markets are feeling the transformation as well, with the demand for workers shifting rapidly, and sometimes in unexpected ways. While the world economy will see stronger growth as AI is increasingly deployed, not everybody will benefit. Just like in previous technological cycles, the gains are spread unevenly. So you might wonder: who are the biggest winners and losers from AI? Don’t worry, keep reading — we’ll tell you!

1. Winners: Advanced economies

Economic theory suggests that poorer countries have the potential to grow faster and catch up with rich countries, provided they develop similar high-quality institutions and can rely on a skilled workforce. Eastern Europe is probably the best example of a previously underdeveloped region growing rapidly to join the club of high-income countries.

However, AI might throw a wrench into global convergence since the technology favors advanced economies. New research by the IMF shows that AI usage is highest in English-speaking high-income countries like the U.S. and the U.K., where adoption has spread much faster across sectors and occupations. The authors estimate that the total labor cost saved by AI usage (the “labor cost equivalent”) is approaching 3% of GDP in some high-income countries. This provides an indicative measure of the productivity gains that are feasible. The growth potential unleashed by AI is significant as workers become more productive across many different industries and professions, and not just a select few. The implication is that rich countries could start outgrowing poor ones in the years to come as AI adoption speeds up.

Source: Aggregate Gains from AI and Their Distribution: Global Evidence from Usage Data

2. Losers: Emerging markets

In emerging markets, AI adoption is narrow and tilted toward the very high-paid occupations, leaving most sectors and occupational spaces completely untouched. While top lawyers, software developers, and scientists might use AI frequently, the technology has not spread to the broader workforce. The low adoption is obviously concerning because it severely limits productivity gains. There is a considerable risk that poorer countries will underperform economically in the coming decade because they are bypassed by today’s technological supercycle.

3. Winners: Skilled AI workers

They are the obvious winners of today. As AI’s knowledge and output improve, so too does the productivity of workers who know how to harness it. These highly skilled workers are seeing their wages rise alongside this newfound productivity, with top earners reaching the upper six-figure range in the U.S. Anthropic is a great example of this. It offers software engineers an incredible base pay of $300,000. Compensation climbs with seniority, reaching $625,000 for senior staff software engineers — and that doesn’t even include the equity shares Anthropic offers on top. The productivity boost from AI will without a doubt widen the divide between these skilled knowledge workers and our next biggest loser, routine white-collar workers.

4. Losers: Routine white-collar professions

The fear that “AI will take over all jobs” is largely overstated; however, AI is contributing to slower hiring for routine white-collar desk jobs. We are already seeing this happen in large consulting firms, financial companies, and tech. Many big companies have significantly reduced job postings and are projecting lower headcount in the years ahead as they seek to improve efficiency through automation with AI. The roles that are made redundant include HR professionals, project managers, marketing roles, customer service, and administrative assistance. Especially for the latter two occupations, AI has shown great promise in automating many of the tasks.

5. Winners: Data center construction jobs

Blue-collar workers, on the other hand, stand to gain from the boom. Data center construction is increasing exponentially across the U.S., and with it the need for jobs required to build out the infrastructure. Electricians, plumbers, pipefitters, and HVAC technicians are benefiting from surging orders and the rising pay that follows. Job postings for these roles are climbing. This is especially the case in remote areas where the AI infrastructure is being built, while skilled workers are in short supply.

6. Losers: Companies competing with the AI boom

With the rapid expansion of data center construction, demand is rising for the skilled trades needed to build and maintain these facilities. This surge in demand is putting additional pressure on employers already competing for a limited pool of qualified workers, intensifying the hiring squeeze and pushing wages higher. Walmart is a good example of this. Maintaining its stores and logistics centers relies on the same workers needed for the data center buildout: HVAC technicians and commercial electricians. And what’s true for Walmart also applies to many other businesses with less financial firepower that are caught in a talent war with the companies involved in the AI boom.

7. Winners: Experienced professionals

Anthropic’s career page reveals a substantial jump in compensation as workers reach senior-level positions. Looking at job postings, we can see that this divide extends beyond salary. Job ads for senior-level roles have almost doubled since 2023. Meanwhile, demand for junior-level hiring has fallen well below its post-pandemic peak, although recent data suggests a modest recovery. As technology becomes more deeply integrated into large companies, employers are increasingly favoring the skills and experience of senior workers, which seem complementary to AI.

8. Losers: Graduates

Graduates are facing one of the worst job markets in many years. The rising adoption of AI, combined with the persistence of remote and hybrid work since the pandemic, makes it increasingly difficult for young workers to enter highly AI-exposed occupations. Working from home increases the cost of hiring inexperienced employees because training, supervision, and mentorship are harder to achieve in a remote setting. Meanwhile, many employers are using AI to automate tasks that young workers have previously done. As these two factors work together, it is impossible to ignore the conclusion that recent graduates and entry-level workers are getting the short end of the stick.

9. Winners: Soft skills — the human premium

As AI is implemented into day-to-day work at large companies, those with strong soft skills, such as leadership, communication, and public speaking, will begin to stand out. It is no secret that AI can create nearly seamless presentations and analyze incredible amounts of data quickly. However, it still cannot communicate ideas to a team or crowd as effectively as a human can. A monotone video created by AI will never be as compelling as a truly witty and charismatic speaker addressing clients in person. Along the same lines, quality leadership of a team or corporation will not be replaced by an AI agent anytime soon. As AI improves, the human element becomes more important again. Students are already adapting to the change. Enrollment in computing degrees has fallen significantly, while social science degrees are becoming more popular.

10. Losers: Hard technical skills like coding or math

Claude and other large language models (LLMs) can code much faster and cleaner than humans can. Degrees like computer science and math become less valuable as LLMs prove theorems that have eluded mathematicians for decades. It is still helpful to possess the knowledge and skills that these degrees come with, but their value is declining in relative terms.

What does this mean for recruiters?

Like any General Purpose Technology, AI creates both winners and losers. When the steam engine was created, factory owners were among the biggest beneficiaries, while artisans faced increasing competition and displacement. When electricity became widespread, most businesses and households benefited enormously, but lamplighters were displaced. Innovation comes with a cost but can also be incredibly rewarding. Although the disruption caused by the AI boom may be divisive, technological change at such scale has historically boosted growth and lifted living standards. The challenge for workers is to adapt quickly enough to benefit from it. For recruiters, the trends highlighted above suggest that the fiercest competition will be for the trades, senior talent, and people-facing skills — while demand for routine white-collar roles and junior positions keeps softening.

In light of the most recent controversy, an op-ed in the Financial Times that was supposedly majority-written by AI, we believe it is important to inform our readers about our internal AI policy. Here is how the Recruitonomics team uses artificial intelligence for research and for writing:

1. Our pieces are written by humans (well, economists)

Recruitonomics is not producing AI slop! All of our pieces are human-written; we do not allow AI to write a large share of our content. You can double-check this yourself using Substack’s recently implemented AI detector called Pangram, which works for all articles published after July 20, 2026. Example:

You might now object that Pangram’s verdict is a probabilistic estimate and therefore not bulletproof. But if we ever produce a piece where AI has played a substantial role in the writing process, our policy is to tell you upfront.

2. We use AI for editing

We use AI to edit our pieces. This includes typos, grammar, and language checks. We hope you appreciate that!

We also use AI for minor writing edits — this could involve shortening some sections that include repetition or some rephrasing of our own writing output, while keeping our tone of voice. The way we’ve used AI in editing so far is to ask it to identify places where our original phrasing wasn’t as crisp or clear as it could have been, and to suggest minor edits.

Sometimes we accept the AI edits, sometimes we don’t, sometimes we reprompt (and re-reprompt), and sometimes we use a mix of AI suggestions together with our own input to make further improvements. You get the idea. Generally speaking, we are quite conservative in our approach, which is precisely why every article of ours published since July 21 has been flagged as 100% human-written by Pangram.

3. We use AI for research

AI is extremely useful for research. Here are examples of how we might use it:

1. Providing a literature review; summarizing the state of the art on a given research topic

2. Fact-finding mission; providing us with data sources, prior analyses, etc.

3. Data analysis and creating charts (see below)

Where AI has played a supporting role, our policy is always to check the output for any mistakes it might make. Unlike others, Recruitonomics is not in the business of bringing you AI-hallucinated research output (I’m not going to mention names but you can read about some prominent examples in the papers).

4. We use AI for data analysis

This is the most obvious and exciting use case of AI, in our opinion. A lot of data analysis has become significantly faster with AI, which has helped us to write several research pieces that would have previously taken up too much of our time.

Here is an example: our recent analysis of German jobs with worker shortages. For some reason, the original data cannot be downloaded in one file but rather in three batches. We used Claude to translate all 519 professions from German into English. It also helped us to combine the data into a single file, to create the ranking for all jobs, and to run the correlation analysis between wage growth and the occupation shortage score. Doing all of this manually would have required hours of work from a research assistant.

5. We use AI for creating charts

Another obvious use case. While many of our charts are produced with Macrobond, AI has made it significantly easier to create Appcast-formatted charts using other data sources.

6. We *sometimes* use AI for idea generation

None of our articles have been thought up by AI — it plays a supporting role. We do use AI to bounce ideas around and bulletproof our own arguments and research, but the core ideas and data analysis are always generated by the Recruitonomics team. Rest assured, we are doing the hard thinking ourselves! And if this were ever not to be the case, our policy is to inform you upfront.

In this piece, we’ve spelled out the most important points of our AI policy because we believe you should know how we use AI in research and in writing. Our internal AI policy guideline is a longer, more detailed document than the overview we provided above. If you have any further questions or concerns about how the Recruitonomics team is using AI, do not hesitate to contact us: julius.probst@appcast.io

Great GDP figures offer some relief…

GDP figures offered some relief earlier this month as the U.K. economy beat expectations by a wide margin. Growth came in at an annualized rate of 2.5% in the first quarter and 1.7% in the second quarter of this year. Just like for the English soccer team, though, a solid performance in the first half is typically followed by a stark second-half collapse. This has been the case for several years in a row, and this year is unlikely to be any different. Economists expect that the negative growth effects from the oil price shock will materialize in the coming months as household energy bills continue to rise. Furthermore, both businesses and consumers will be careful with their spending decisions in the weeks to come as they anxiously await the next Labour Budget. While some economists have wondered whether the Office for National Statistics (ONS) is not getting its seasonal adjustment right, it is more likely that the U.K. GDP figures in recent years have been subject to a political cycle: the two previous Autumn Budgets have been surrounded by extreme policy uncertainty, dragging down the economy in the second half of the year. And before Labour was in power, Liz Truss damaged the economy tremendously with her ill-advised mini-budget in September 2022, and was ousted as prime minister shortly thereafter. The recurrent growth drag after summer has been due to a combination of bad luck and bad policymaking rather than anything else.

…but the labor market continues to shed jobs

July’s job numbers show that close to 13,000 jobs have been lost, while the numbers for the June jobs report were revised down and now show a similar decline of 13,000. This brings the cumulative job loss since the fall of 2024 to about 190,000.

The sectoral composition of the job losses remains unchanged. Retail is down by about 140,000 since January 2024, and hospitality by 100,000. Most other industries are stagnant, except for the tech sector (information and communication), which has lost some 83,000 jobs since then. As in many other advanced economies, healthcare remains the biggest source of job creation in the U.K., adding about 145,000 jobs over the last two-and-a-half years.

Labor demand keeps falling even as the unemployment rate is steady

The unemployment rate remains steady at 4.9%, defying the more pessimistic forecast from the Bank of England (BoE) for now. While monetary policymakers project a gradual increase to 5.3% by the end of the year, it now looks more likely that unemployment will hover around 5% for the time being, as has been the case since the spring.

Meanwhile, labor demand is still falling as employers dial back recruitment. The total number of vacancies in the U.K. fell to 707,000 — the lowest value since 2015. Worker churn in the U.K. has come to a standstill, with companies refraining from hiring and workers unable to switch jobs. For jobseekers, this is simply a terrible market. And the lack of labor market dynamism will cost the economy dearly in the years to come if we do not see an uptick anytime soon.

Young workers are suffering the most from the labor market slowdown. The National Insurance Contribution increase and the minimum wage hike under Labour have led to surging employment costs, with retail and hospitality cutting down part-time roles and summer roles that have historically offered opportunities for younger people. Youth unemployment has jumped to about 14.6% as a result, its highest value since the years following the Global Financial Crisis. The much higher prevalence of remote work since the pandemic and AI adoption are two additional headwinds for graduates, aggravating Britain’s youth job crisis.

Wage growth continues to moderate. No surprise there, given the weakness of the labor market. There is a strong divide between private and public sector pay, with the latter outperforming by about 2.5 percentage points. Lower pay gains are not good for workers, but the BoE will be relieved by the lack of wage pressures. It will allow for a more moderate monetary policy response following the oil price shock, as there is currently little indication that wages will drive up inflation further (so-called second-round effects).

What does this mean for recruiters?

GDP is going up even as payroll employment in the U.K. continues to fall. How is that possible? Well, it looks like British workers are becoming more productive. While it is too early to be certain, there are signs that AI adoption is leading to a productivity revival. Is AI then causing employment to fall? Perhaps for graduates — but the broader job losses, including for young workers, are concentrated in retail and hospitality, two sectors with little AI exposure. The sluggish labor market is the result of domestic policies and international headwinds like the oil price shock. As these effects are dragging on, Burnham’s government should pursue growth-friendly policies that support job creation rather than hinder it. For recruiters, this means job postings will keep attracting a large volume of applicants — so the challenge shifts to identifying the right candidate, while some well-qualified job seekers may be hesitant to move in such a sluggish economy.

Photo credit: Emilio Takas

Earlier this year, President Donald Trump nominated Kevin Warsh to be the new chairman of the Federal Reserve (Fed), America’s central bank, which is responsible for price stability and setting interest rates. Monetary policy has an outsized influence on inflation, wages, and employment trends. In fact, there are few things that matter more. Price pressures have remained elevated since the pandemic, and inflation has been accelerating again through 2026. The AI investment boom is driving up input prices and pay in the industries most exposed to it. With financial markets questioning Fed competence at a crucial time, there is a risk that monetary policymakers are losing control of the nominal economy. This should concern workers and employers alike.

Warsh’s latest press conference confused markets

Warsh was an odd choice. Trump is a self-proclaimed low-interest guy, while the new chairman has historically been known as an inflation hawk — in the aftermath of the global financial crisis, he was more concerned about inflation than persistently high unemployment. But since his appointment, Warsh’s attitude might have shifted. It’s hard to know for sure, since his signals have been anything but clear. Financial markets were left confused after the last press conference two weeks ago when the Fed left rates unchanged. Warsh doesn’t believe in forward guidance — offering a guess about the future path of interest rates to steer markets. Removing that from the central bank’s toolkit is all well and good, but it doesn’t work if the chair is not 100% explicit about the Fed’s reaction function — the rules of how monetary policy will respond to economic outcomes. And he wasn’t. This left investors guessing and resulted in a substantial spike in long-term interest rates: 10-year government bond yields rose by seven basis points on the day of the press conference. In case you didn’t know, this is a big deal! The U.S. bond market is one of the largest and most liquid financial markets in the world. Such a surge in interest rates is not just a harbinger of macroeconomic volatility; it also shows that investors are expecting inflation to increase.

Inflation is rising again

You might now object that the acceleration is a result of the oil price shock, and there is some truth to that, as we pointed out earlier this year. But core inflation — a measure stripping out volatile food and energy prices — is accelerating too: the core Personal Consumption Expenditures (PCE) rate is exceeding 3%, while the Fed is supposedly targeting an increase of 2%.

The US is experiencing a surge in nominal spending

There is a straightforward explanation for why underlying inflation is rising, and it has nothing to do with energy shocks: The U.S. economy is experiencing a nominal spending boom. As a reminder, real GDP growth basically means producing more output with the same resources (it’s an efficiency gain), while nominal GDP growth is the change in the total dollar value of all goods and services in the economy (nominal growth is the sum of real GDP growth and inflation). A spending surge might simply drive up prices and wages across the board without leaving anyone better off.

This is exactly what’s happening right now. Following the post-pandemic economic boom, nominal GDP growth finally slowed to a healthier 5% by mid-2025. However, in the second half of last year, it reaccelerated, surpassing 6% in the first quarter of 2026. Even more shocking, the latest data shows it growing by 7.9% in the second quarter, a level that is roughly 3 percentage points too high to be consistent with the Fed’s inflation target of 2%. For the third quarter, the Fed’s GDP Nowcast currently anticipates 5.8% real growth, which would be consistent with more than 8.5% nominal growth. This miss represents a spectacular failure in monetary policymaking, with the Fed severely underestimating the strength of the current inflationary boom. How come, you ask?

The AI investment boom is inflationary

Economists are currently debating whether AI is inflationary. If the technology produces large productivity gains, this could very well reduce inflation. An investment and consumption boom, on the other hand, would be inflationary, at least in the short run.

While Warsh has positioned himself on the side of AI lowering inflation, the data suggests the opposite is the case. Large U.S. tech companies are on track to spend $1 trillion this year on capital expenditures. The data center construction boom is about to surpass previous technological cycles, such as the dot-com era, in terms of investment committed. And the infrastructure spending is starting to push up input prices and wages, driving up construction costs. Meanwhile, stocks are surging and American consumers are spending their money faster than ever. This wealth-driven consumption boom is another factor pushing up inflation.

Is the Fed correcting course?

While several Fed governors recently indicated that they are uncomfortable with current policy and would consider hiking interest rates soon, the weak employment numbers might have thrown a wrench into that plan. Prediction markets show that the probability of a September rate hike fell from 60% in early August to 40% after the jobs report, and to 34% following today's CPI release, even though inflation remains well above the Fed's 2% target.

Why more demand won’t create many jobs

A significant nominal spending boom such as the one the U.S. is currently experiencing would, under normal circumstances, be quite bullish for job creation. But here is the problem. By most measures, the U.S. labor market is already close to full employment. The unemployment rate is low and labor force participation high. The aging workforce and Trump’s immigration policies have reduced breakeven job growth — the level of job creation consistent with stable unemployment — to about 50,000 jobs per month. This means that all the additional spending from the AI boom is facing severe supply constraints. Instead of boosting employment, it’s simply pushing up prices and wages.

What does this mean for recruiters?

The Fed has allowed the nominal economy to grow at a much faster pace than warranted. The end result will not just be higher inflation, but also higher wages. With job creation constrained by demographics and migration policies, workers will do their best not to let higher prices erode their purchasing power. And the AI boom is giving them plenty of ammunition. We are seeing a surge in demand for workers with AI skills. Many healthcare occupations also remain extremely hard to fill. And above all, hiring for any job related to data center construction is booming. Following two years of moderate wage pressure, recruiters should anticipate compensation demands creeping up in these segments, with potential knock-on effects for the rest of the labor market. While good for workers, this will become a problem for squeezed employers who can’t afford more wage competition.

Photo Credit: George Bakos

The Spring shoots of a strong job market have withered in the summer heat. The rising optimism that the labor market was perhaps strengthening took a big hit with the latest jobs report. July payroll employment declined by 23,000, a surprisingly bad reading, and yet the unemployment rate ticked down a notch, to 4.1%. On the surface, this seems puzzling: slowing job growth and less unemployment. So, let’s unpack the details to make sense of this seeming contradiction.

No hot streak for employment this summer

It’s not just that July saw negative job growth. May and June also had a combined 103,000 in downward revisions. This brought down the three-month average in job growth to 20,000. If it’s any solace, we can call the Spring surge an anomaly and this new subdued trend merely reversion to the mean — consistent with the state of the labor market in the winter.

Local government jobs were the main drag, declining 50,000, which could be due to seasonal distortions (due to educators largely being out of work for the summer). Retail lost 19,000. Financial activities jobs were down 14,000.

Leisure and hospitality has been at the epicenter of the summer swoon — losing over 80,000 jobs in June and July alone. This is very much contrary to expectations, with many reports anticipating a World Cup boom, which clearly did not materialize.

And healthcare — long the stalwart industry of the job market — posted a lackluster gain of 22,000 in July, which is far below its average over the last year; this was driven by a decline in hospital hiring (-400), which could be related to looming Medicaid cuts.

Labor force shrinking alongside weak job gains

The unemployment rate ticked down, but for “bad” reasons — because the labor force shrunk. In other words, fewer people are bothering to even look for work. That could be either because they’re discouraged in this tough market for those without a job, or because of broader tightening in the pool of workers, such as through immigration policy.

Other measures of the labor force were more subdued. For prime-age workers, both the employment-to-population ratio and the labor force participation rate bounced back in July, to 80.4% and 83.4%, respectively. These increases in the share of prime-age adults with a job, or at least looking for one, are encouraging — but they come on the heels of steep falls in June. But we did not see a rebound in the sharp drop for younger adults, those 25-to-34 years old.

The sharp drop in the labor force participation rate for younger professionals (25-to-34 years old) remains a worry. Economists at the Federal Reserve Bank of Minneapolis recently reported that this drop may be explained by a large increase in layoffs among these workers, resulting in many leaving the labor force altogether.

So overall, the labor market seems to be tightening from a supply perspective. Yet despite that, wage growth slowed to 3.2% year-over-year, a sign that the pool of job seekers may be falling faster than job growth is decelerating, perhaps related to more restrictive immigration policies.

What does this mean for recruiters?

This is a puzzling jobs report, honestly. Overall job growth has receded from its surge earlier this year, as most industries outside of healthcare and construction remain weak. Yet, unemployment is falling because there are fewer people looking for work. If you are a recruiter hiring for specialized front-line roles like HVAC technicians or healthcare specialties, competition likely remains elevated. But, if you’re hiring for hospitality or service workers like bartenders or waitstaff, demand is likely below its peak several years ago since the World Cup did not significantly boost hiring. In summary, the labor market is back in a state much closer to 2025: a low-hire, low-fire environment.

Photo credit: Etienne Girardet

Yes, the title is borrowed from an earlier article we published on the U.S. using Appcast’s proprietary Recruiting Difficulty Score. In this piece, we rank the hardest-to-fill occupations in Germany based on official labor market data. We also show how worker shortages are highly correlated with vacancy duration and wage growth.

Germany’s occupation shortage ranking

Germany’s Federal Employment Agency has created a worker shortage analysis for 519 distinct occupations. These are sorted into three different groups according to their skill and education requirements.

1. Skilled workers: “Fachkräfte” in German, which loosely translates to skilled workers. These are jobs that require completed vocational training (typically 2 to 3 years) or a comparable qualification, covering skilled tasks such as those of an electrician, nurse, or cook.

2. Specialists: Jobs needing qualifications beyond basic vocational training, such as a master craftsman (“Meister”), technician diploma, or bachelor’s degree. They typically involve more complex work with planning or supervisory responsibility.

3. Experts: Highly complex roles that generally require at least a four-year university degree (master’s level or above), spanning leadership, research, and strategic or highly specialized professional work (e.g., physicians, engineers in senior roles, and academics).

Note how this classification leaves out any job with minimal skill or educational requirements. This is by design, as such occupations are arguably not constrained by labor shortages.

The occupation shortage score is based on six different indicators, each capturing some aspect of labor market tightness.

1. Median vacancy duration: A hiring difficulty measure capturing how long it takes to fill a job.

2. Jobseeker-to-vacancy ratio: A measure of candidate supply versus labor demand.

3. Unemployment rate by occupation: A measure of labor supply.

4. Employment change of foreigners: A measure of hiring difficulty. It captures how employers respond to domestic labor constraints.

5. Exit rate of unemployed workers: This captures the speed at which workers within an occupation re-enter the labor market.

6. Median wage growth: A measure of wage pressure reflecting competition among employers for labor.

Here is how the score works. A value below 1.5 indicates that the occupation does not have any worker shortages (“no bottleneck”). Jobs between 1.5 and 2 are “under observation”, while any occupation scoring 2 or higher is classified as a “bottleneck occupation”.

The 20 jobs with the highest shortage score

Two things stand out when looking at the list of the 20 hardest-to-fill jobs below. Just like in the U.S., recruiting for certain healthcare roles is extremely difficult. A rapidly aging society leads to surging demand, while licensing restrictions and educational requirements constrain candidate supply. Physiotherapists, dental assistants, and nurses are among the jobs with the highest shortages, while many of the other occupations are related to infrastructure. What all of them have in common is that they are “physical jobs” — by that, we mean that they require a physical presence and cannot be performed remotely.

Fact 1: Jobs requiring less education face bigger worker shortages

The next table summarizes how many jobs are in each shortage category for the three different skill levels. What is striking is that skilled workers — needing the lowest degree requirement — experience the highest occupation shortages. 36% of jobs in the skilled worker category are bottleneck occupations, with another 32% being under observation. This is higher than for specialists and experts. Jobs with the highest degree requirements are, ironically, more often classified as no bottleneck.

Fact 2: Jobs requiring less education take longer to fill

One of the more relevant metrics going into the shortage score is vacancy duration. It is extremely costly for companies to leave jobs unfilled. Elevated vacancy duration is therefore a good indicator of recruitment difficulty. The data shows that positions for skilled workers take by far the longest to fill across all shortage categories. The gap between experts and skilled workers ranges from 19 days in no-bottleneck occupations to 32 days in bottleneck ones.

Fact 3: Jobs requiring less education see faster wage growth

The law of supply and demand also holds for the labor market. All else equal, an increase in demand causes prices to rise. For workers, this means higher wage growth in occupations with a higher shortage score. As expected, bottleneck occupations have experienced much faster pay gains compared to no-bottleneck occupations over a three-year period between 2021 and 2024. For skilled workers, the difference is 3 percentage points, while for experts it’s closer to 4.

Skilled workers are experiencing significantly higher wage growth across all categories, while wages for experts are slightly more sensitive to the occupation shortage ranking. This likely reflects tighter, more specialized labor markets where scarce experts can command bigger premiums relative to their peers. Skilled-trade wages, on the other hand, are more anchored by collective agreements and broader labor supply.

Using data for all 519 jobs, we find that a 1-point increase in the shortage score is associated with a 3.8 percentage point increase in three-year wage growth. Across the observed score range (about 0.3 to 2.8), the line rises from about 7% predicted wage growth at the low end to 17% at the high end. While the relationship isn’t perfect, occupation shortages are an important determinant of compensation trends.

Fact 4: Infrastructure is facing the biggest labor constraints

Digging deeper into the skilled trade category, we find that a significant share of high-labor-shortage occupations is related to infrastructure. Powerline maintenance, crane operation, and railway, road, sewage, and pipeline construction are all occupations that exhibit both very high shortage scores and elevated wage growth. This is a harbinger of things to come as the German stimulus funds are finally being deployed. After decades of underinvestment, infrastructure spending is soaring, with funds for railway investment projected to be around €20 billion this year — up from less than €10 billion just a couple of years ago. Even adjusted for inflation, that's more than 50% above pre-pandemic levels.

However, economists anticipate that this rapid inflow of money will aggravate supply constraints, particularly when it comes to the available workforce. As our data shows, skilled-worker occupations are already topping the shortage list. About a third of businesses in construction report that worker shortages are constraining their output, a much higher share than just a few years ago.

It is very likely that these problems will only get worse in the coming years due to rising demand. Germany’s fiscal stimulus might therefore run into some considerable supply constraints, with input prices soaring and projects being delayed due to domestic worker shortages.

What does this mean for recruiters?

We have shown in prior research how the AI economy is creating some unexpected winners, namely specialized blue-collar workers in infrastructure-related roles. The data center construction boom, the green energy transition, higher global defense spending, and rising healthcare needs are all increasing the demand for physical workers.

Zooming in on the German labor market, we see this happening. Our list of the 20 hardest-to-fill jobs is dominated by roles in healthcare and skilled trades, particularly in construction and infrastructure. They are experiencing rapid wage growth and significantly longer vacancy duration, as recruiters struggle to fill these positions. This is, of course, exactly what one would expect to see in sectors where rising demand meets constrained labor supply. If you were hoping for conditions to improve, I’ll have to disappoint you. With Germany’s fiscal stimulus colliding with the country’s rapidly aging workforce, recruiting difficulties for many of these roles will only increase.

Last call to join us: The Recruitonomics team is hosting a Substack live event on Aug. 7 to break down the U.S. July jobs report, released earlier that morning. Use this link on the day!

In case you haven’t seen this: 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. Use this link to join us on the day!

And below, you can find an overview of all the articles we published in July. Keep reading for data releases coming up in August and other interesting recruitment and labor market insights.

Upcoming Economic Data Releases and Events

• August 7: US Employment Situation Report

• August 12: US CPI

• August 13: UK GDP (monthly estimate, June 2026)

• August 14: Eurozone GDP (flash estimate, Q2 2026) and employment data

• August 18: UK Labour Market Overview

• August 19: UK CPI

• August 19: Eurozone CPI (final July reading)

• August 19: Eurozone vacancy statistics

In recent news:

Julius Probst, PhD

Do Not Trust Vibes-Based Data!

The U.S. economy continues to perform extraordinarily well. Underlying GDP — a measure of domestic demand in the economy — shows that the U.S. was growing at an annualized rate of 2.8% in the first half of this year. And while it is true that the data center construction boom is contributing, most of the growth is driven by consumer spending. This shouldn’t surprise us, given that consumption makes up almost 70% of the economy. Even as the oil shock has driven up inflation globally, American consumers have not tightened their belts in a meaningful way so far.

Here's the weird thing, though. You wouldn’t know it from observing Americans’ spending patterns, but consumer confidence in the U.S. is currently at an all-time low. The University of Michigan index shows a value as low as during the Great Recession in 2009. Even the alternative Conference Board measure shows a steep decline over the last couple of years. Neither reflects in any meaningful way that the economy continues to perform well, that the stock market has risen for years, and that the labor market is close to full employment.

We also do not believe the popular theory that most of the consumer spending today is driven by the top 10% of earners, while everybody else is suffering. Data from bank card transactions shows that consumer outlays have held up well across all income groups.

Vibes are simply bad! And this also extends to the labor market. Even with unemployment at a historic low, fears about a labor market downturn remain historically elevated. Just as with the other metric, we need to go back all the way to 2008 to see a similarly high share of negative responses.

Global shocks and AI obviously play a role in shaping current sentiment. A lot of data shows that workers have FOBO — the fear of becoming obsolete — as AI disrupts the workplace. Sentiment is also increasingly shaped by partisanship: when your side holds the White House, the economy looks great; when the other party runs things, it looks bleak. If the Michigan survey really is biased toward Democrats, that would help explain the grim numbers.

Either way, there has been a fundamental disconnect between sentiment data and how the economy is actually performing. This vibecession, as some economists have called it, has now been going on for several years. But there is currently no reason to believe that the economy or labor market will fall off a cliff anytime soon — I know, famous last words! GDP is expected to grow at more than 2% this year, payroll employment has picked up in recent months following a severe slowdown at the end of last year, and high stock market valuations are boosting consumer spending. Moreover, data center construction has taken off, creating tight regional labor markets where the investments are taking place. California’s economy is growing at a stunning rate again, buoyed by an inflow of capital into the AI economy. Experienced workers with AI skills are in high demand, seeing their compensation soar.

When it comes to which indicators are more reliable, it’s an easy pick for me. Sentiment data has been untrustworthy for years now. To get a sense of where the economy is headed, look at what consumers are spending their money on, and where companies are hiring and who they're bringing on. Actions speak louder than words!

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’s 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 occupation, 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 — its 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.