Photo credit: Marcus Lenk

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

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

Housing transactions have plummeted

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

High mortgage rates are creating a lock-in effect

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

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

Geographic mobility has been declining for decades

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

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

Blame the aging population and housing unaffordability

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

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

Regional construction hotspots offer pockets of affordability

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

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

What’s the labor market connection?

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

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

What does this mean for recruiters?

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

Photo credit: Diane Picchiottino

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

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

Industry insights

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

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

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

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

Labor force insights

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

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

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

What does this mean for recruiters?

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

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

Upcoming Economic Data Releases and Events

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

• June 5: US Employment Situation Report

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

• June 10: US CPI

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

• June 17: UK CPI

• June 17: Eurozone CPI (final May reading)

• June 18: UK Labour Market Overview

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

In recent news:

Julius Probst, PhD

AI is fueling economic growth in South Korea

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

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

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

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

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

Canada’s labor market continues to weaken

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

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

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

US: Polarized job growth by firm size

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

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

Photo credit: Anthony Fomin

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

Hiring demand shows that worker fortunes are diverging

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

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

AI workers: Gain

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

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

Routine white-collar workers: Pain

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

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

Physical workers: More gain than pain

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

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

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

Are we seeing wage dispersion?

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

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

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

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

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

The 3-tier segmentation of the labor market

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

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

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

What does this mean for recruiters?

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

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

Photo Credit: Stefan Cosma

Armageddon or abundance?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How does the AI boom transform the workforce?

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

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

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

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

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

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

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

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

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

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

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

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

Are other scenarios possible?

Clearly, yes.

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

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

Summing up

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

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

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

Good economic momentum in the first quarter is old news

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

Unemployment up, vacancies down

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

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

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

Massive job losses, but beware of data revisions

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

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

Real wages are heading toward stagnation again

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

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

A potential leadership contest is rattling financial markets

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

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

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

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

What does this mean for recruiters?

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

Photo Credit: Brian Stalter

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

Employment growth defies the skeptics

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

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

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

Jobs are spreading beyond healthcare

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

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

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

What does this mean for recruiters?

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

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

Photo Credit: Maryna Yazbeck

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

Fed: A divided final meeting for Powell

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

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

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

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

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

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

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

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

BoE: Chief Economist dissents in favor of a rate hike

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

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

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

What does this mean for recruiters?

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

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

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

Here is all of the new content we posted in April. Keep reading for data releases coming up in May and other interesting labor market news brought to you by the Recruitonomics team.

Upcoming Economic Data Releases and Events

• May 5: US Job Openings and Labor Turnover Survey (JOLTS)

• May 8: US Employment Situation Report

• May 12: US CPI

• May 19: UK Labour Market Overview

• May 20: UK CPI

• May 20: Eurozone CPI

• May 28: US GDP statistics (second estimate, Q1 2026)

In recent news:

Julius Probst, PhD

Americans increasingly worried about the job market

The Recruitonomics team has written a lot about the weakening of the U.S. labor market over the last couple of years. No wonder, then, that Americans have become more pessimistic about their own job market prospects. The University of Michigan Surveys of Consumers show that the number of people who think they will lose their job within the next five years has risen substantially.

Interestingly, the data is broken out by level of education. Workers with college degrees have steadily become more pessimistic about the job market since mid-2023, just a few months after the release of ChatGPT. They believe that the probability of job loss within five years is now closer to 25%, compared to about 15% a few years ago. While the macro environment has deteriorated as well, this might suggest that educated workers themselves think of AI as a labor-displacing technology, at least in some cases.

The effect of the oil price shock is also already showing up in the chart. As of this March, workers with less than a high school degree are assessing their job loss probability as being considerably higher compared to before. This is in line with our previous piece on the oil shock, which outlined the different sectors that will suffer the most from rising inflation, higher interest rates, and lower growth. With transportation, construction, hospitality, and retail being particularly exposed, it is not surprising that less-educated workers are suddenly fearing for their labor market prospects.

Germany’s hospitality sector is finally recovering

Germany’s hospitality sector has suffered a lot in recent years: First the pandemic, then the energy crisis in Europe weighed on the economic outlook, with inflation surging. With Germany’s economy being stagnant since 2020 and households not spending, employment in accommodation and food services has remained below pre-pandemic levels for more than five years.

To support businesses in the sector, the German government decided to reduce the VAT rate on food served in restaurants and catering services permanently from 19% to 7% on January 1^st, 2026 (the 7% VAT was already in effect during the pandemic, but only as a temporary measure).

Thanks to the slightly better economic outlook this year as the German stimulus starts to kick in, hospitality looks set for a recovery, depending on whether German households will loosen their purse strings and start spending. In terms of employment, the sector is now finally back to where it was before COVID-19 hit the global economy six years ago.

Youth unemployment ticking up in Europe, but some markets defy the trend

For now, youth unemployment across Europe remains historically low. But as growth has slowed in recent years and the labor market has weakened, youth unemployment has increased somewhat relative to where it was in 2022 (and 2019). This is particularly true for countries that have experienced a stagnant economy like Finland and Romania, for example.

But there are some economies defying the trend, particularly Southern Europe, which has experienced a spectacular economic recovery from the pandemic and subsequent energy crisis. There are several factors driving this, including the tourism boom, the rise of digital nomadism, lower exposure to the U.S. trade war, and a labor cost advantage over Northern European economies.

In any case, strong economic growth together with adverse demographics — Southern European populations are stagnant or even shrinking — can explain why youth unemployment in Italy, Spain, Greece, and Cyprus has continued to decline by several percentage points since 2022 even as it has edged up elsewhere.

Economic momentum that didn’t last long

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

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

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

March Job losses a sign of things to come?

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

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

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

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

Vacancies continue to fall as demand slows

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

Inflation outpacing wage growth

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

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

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

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

What does this mean for recruiters?

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

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

Photo Credit: Shaah Shahidh

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

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

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

Large oil price shocks are typically followed by economic downturns

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

The decline in discretionary income reduces consumer spending

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

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

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

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

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

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

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

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

Monetary policy makers typically pile on with interest rate hikes

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

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

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

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

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

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

Which industries are most exposed to an energy price shock?

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

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

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

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

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

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

What does this mean for recruiters?

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

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

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

Photo Credit: Jalen Hueser

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

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

Construction of data centers is creating a job postings boom

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

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

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

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

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

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

Labor supply is not keeping pace with demand

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

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

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

What does this mean for recruiters?

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

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

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

Photo Credit: Library of Congress

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

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

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

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

What does this mean for recruiters?

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

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

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

Upcoming Economic Data Releases and Events

• April 3: US Employment Situation Report

• April 10: US CPI

• April 16: Eurozone CPI

• April 17: Eurozone Labour Force Survey

• April 21: UK Labour Market overview

• April 22: UK CPI

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

• April 30: US GDP statistics

In recent news:

Julius Probst, PhD

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

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

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

British consumer sentiment turns sour

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

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

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

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

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

German inflation jumps

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

Photo Credit: NASA

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

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

But what if that dynamic is about to reverse?

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

The old geography of jobs based on manufacturing

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

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

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

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

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

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

The New Geography of Jobs based on tech

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

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

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

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

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

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

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

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

AI and the NEW New Geography of Jobs

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

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

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

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

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

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

What does this mean for recruiters?

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

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

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

Unemployment and vacancies steady, payroll jobs up

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

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

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

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

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

Why the oil shock matters for job growth

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

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

What it means for interest rates and the economy

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

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

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

What does that mean for recruiters?

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

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

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

Photo Credit: Campbell

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

What is a General Purpose Technology, you might wonder?

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

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

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

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

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

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

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

Fact 2: Capital investment surges

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Photo Credit: Aditya Vyas

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

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

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

Killing the Golden Goose

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

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

Ominous signs: Downward revisions, tech hiring and construction slowdowns

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

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

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

An Older Population

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

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

What does this mean for recruiters?

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

Photo Credit: Chris Lawton

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

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

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

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

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

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

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

What the economic outlook was supposed to look like

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

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

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

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

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

Mission accomplished for the Bank of England (BoE)?

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

How the war with Iran is changing the picture

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

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

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

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

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

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

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

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

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

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

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

What does that mean for recruiters?

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

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

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

Upcoming Economic Data Releases and Events

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

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

• Mid-March: EU Wage Growth

• March 19: UK Labour Market Report

• March 27: US Personal Income and Outlays Release

• March 31: EU Inflation

In Recent News…

Julius Probst, PhD

Are tariffs higher or lower?

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

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

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

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

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

What does that mean for recruiters?

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

AI automation and software developers

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

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

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

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

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

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

What does that mean for recruiters?

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