Will the US Labor Market Rebound in 2025?

The stalled but resilient U.S. labor market — characterized by low hiring, low firing, and a lack of churn — seems likely to continue for the first half of the year, but experts still harbor optimism for a rebound in 2025.     

“The labor market was noticeably softer entering 2025 than it was a year ago,” said Julia Pollak, chief economist at ZipRecruiter. Job openings, hiring, and quitting all fell in 2024, reflecting a slowing job market with employers hesitant to expand payroll but also reluctant to conduct mass layoffs, she said. 

“2025 could start off slow and stable at the current pace but then heat up in the second half,” she added.   

Employment surveys, including ZipRecruiter data, show that employers expect to increase headcount this year compared with 2024. Additionally, workers are seeking new job opportunities at the highest rate in years amid record low levels of job satisfaction, according to recent Gallup polling.  

“The dynamism of the U.S. labor market — how often workers switch jobs in pursuit of better opportunities — has slowed sharply over the past two years, and the key question for 2025 is, ‘Will workers regain the confidence to quit?’ ” said Sam Kuhn, an economist at Appcast, a job advertising technology company in Lebanon, N.H. “Most hiring in the U.S. comes from churn — workers leaving jobs and being replaced. Without that churn, employment growth risks stagnation, leaving the labor market idling rather than expanding.”  

The labor market has been bifurcated for the last 12-24 months, said Rachel Sederberg, a labor economist and director of research at Lightcast, a labor market data analytics provider in Moscow, Idaho. “Those with less than a college degree are experiencing a tight labor market [meaning there are more jobs than workers], while college-educated workers are experiencing much more difficulty finding a job. I expect that to continue,” she said.  

Experts agree that unemployment will rise slightly in 2025 but remain low, wage growth will ease, and interest rates will be kept in place as inflation slowly recedes. 

But businesses are worried about rising costs, particularly as a result of policy changes coming from the Trump administration on spending, tariffs, tax cuts, and immigration enforcement.  

“There are a number of policies from the new administration that could potentially affect the labor market where the results are uncertain,” Sederberg said. “Just one of those things — immigration changes — could affect the wages and availability of front-line workers.”  

Kuhn said that trade policy angst is rising as the White House goes through with plans to impose hefty tariffs on Canada, Mexico, and China — three of the nation’s largest trading partners. 

“While supply chains and consumer prices are obvious pressure points, the labor market may soon feel the effects as well,” he said. “Fresh data suggests manufacturers are already bracing for impact, with many citing tariffs as a reason to pull back on investment. A slowdown in business spending often translates into weaker hiring — something to watch.”  

The federal workforce cuts could also add to the already difficult hiring situation for white-collar roles. “A wave of layoffs across the federal government is adding to labor market jitters,” Kuhn said. “Initial unemployment claims in the D.C. metro spiked last week, a potential early warning sign that cracks in the job market are beginning to emerge.”  

The majority of economists surveyed by the National Association for Business Economics at the end of 2024 forecast that gross domestic product would increase by 2% in 2025, inflation would cool further — projected to slow to a 2.3% annual rate by the end of the year — and a recession was not in the cards this year. 

Job Growth to Soften

Average monthly employment gains in 2024 were above the pace needed to keep up with population growth but below the levels from recent years.  

On that note, Sederberg cautioned that economists now tend to benchmark workforce metrics on the 2021-2022 pandemic recovery years. “Those years were not normal,” she said. “We’ve got to adjust anchoring our expectations on years that were incredibly abnormal.”  

But while overall job growth was solid last year, the bulk of job gains has been concentrated in three industries: health care, government, and leisure and hospitality. Almost 75% of all jobs added in 2024 were found in these industries. Meanwhile, job growth in other industries, particularly in white-collar sectors, has been weak. 

“It’s not a big surprise that health care will continue to lead job creation,” said Mallory Vachon, chief economist at LaborIQ, a salary benchmarking software company in Dallas. “We have an aging population, and demand for those roles is skyrocketing, especially for nursing and home health aide roles. Health care could account for 40% of all jobs added in 2025.” 

Average monthly gains in government employment dropped in 2024, and government hiring is likely to continue to fall in 2025 as President Donald Trump enacts plans to downsize the federal government.  

Kuhn said that the sharpest slowdown has come in “sitting-down” jobs, or white-collar roles, where net hiring rates are hovering near contraction.  

“Take the information sector, which includes many tech jobs,” he said. “In 2021, it grew at an astonishing 11% annually, fueled by the pandemic-era boom in consumer tech and companies’ mad dash to keep up with surging demand for goods and digital services. That momentum has vanished. Central banks hiking interest rates to slow inflation weakened the business outlook, and a shift in focus from growth to efficiency resulted in far fewer hires.”  

LaborIQ is forecasting that 1.8 million new jobs will be added this year, Vachon said. That’s below last year’s total of 2.2 million new jobs.  

“That equates to about 16,000 fewer jobs added each month compared to last year,” she said. “Hiring will slow modestly, with annual job growth of 1.2% compared to 1.3% in 2024.” 

Pollak said that it wouldn’t take much of an increase in job openings for a shift back to a more dynamic labor market. “We’re in a better place than many people had expected us to be in,” she said. “In many ways, we are coming out of a storm, not going into one. Many companies are still reeling from aftershocks from the pandemic, but those aftershocks are weaker and further spread apart.”  

Unemployment to Stay Low

Experts predicted that the unemployment rate would remain historically low in 2025, ranging from 4% to 4.5%. While unemployment crept up in 2024, much of that increase was the result of new and returning entrants into the labor force. 

The difference in unemployment between higher- and lower-educated workers will be notable, Sederberg said. “There will be far more openings than people to fill service-sector, front-line roles. College-educated workers are seeing less mobility, and I think that will continue.” 

Vachon is forecasting a modest increase in layoffs and a slight decline in quits. “We’re not expecting an increase in voluntary turnover this year,” she said.  

Sederberg agreed, saying that “employers currently have the upper hand, and employees are staying put and not wanting to take a risk. But this quits rate is very normal. What we saw in 2022 [The Great Resignation] was very abnormal.” 

Layoffs have been picking up, experts said, but despite a handful of public layoff announcements — particularly in the tech industry — overall layoffs remain subdued.  

“It will depend on how companies respond to changing demands,” Sederberg said. “In the last couple of years, we have heard a lot about layoffs, but they are well within normal bounds. They are typically being done as part of a restructuring given changing demands for products and services. I expect layoffs will remain within historical norms, despite some being newsworthy.” 

How much the adoption of artificial intelligence figures into layoffs is difficult to ascertain, but it has likely been a factor. 

Wage Growth to Remain Stable 

Average hourly wage growth has slowed for most workers, and wage growth has settled at a solid year-over-year pace, a welcome sign of stability after years of unsustainable growth that contributed to inflation.  

“There is no reason not to expect that wage growth stays in the 3.5% or 4% range, which would be higher than the range that we saw in the years leading up to the pandemic,” Pollak said.   

Vachon agreed, saying that it is unlikely that wage growth will come down further over the next several years. “With a shrinking talent pool, wages will be pressured,” she said. “Going forward, employers should consider 3% as the wage growth floor, especially if they want to stay competitive.” 

Sederberg added that wage pressure would be felt in industries such as agriculture, hospitality, and construction if workers were removed due to deportation or an immigration slowdown.