Editor’s Note: The following is a 2025 year-end labor market summary, originally published by The Workplace Advisors, and is being republished with permission. Reporting of federal labor data was delayed due to government shutdowns in 2025 and early 2026.
Looking back, 2025 held many labor market uncertainties. While January 2026 data showed some positive trends, we anticipate some continued labor instability in the coming year. Here are the key data points we’re looking at:
Job and Wage Growth
Looking back at 2025:
- The US Department of Labor (USDOL) reports that only 584,000 new jobs were added to the US economy in 2025. That’s WAY below the 2 million plus jobs added in 2023 and 2024. December was particularly slow, with only 50,000 new jobs added.
- Government employment decreased most significantly in 2025, with a decline of 9.2%. Healthcare and food services posted the largest increase in the number of new positions.
- In a December report from JP Morgan, economists at the bank attributed 2025’s loss of jobs momentum to business uncertainty related to tariffs and trade policies. “As a result, both long-term and short-term business planning have remained difficult, and layoff and hiring rates have been low,” Michael Feroli, chief U.S. economist at JPMorgan, said in the report. “Businesses are hesitant to make sweeping changes to either grow or shrink their payrolls when they’re unsure what the next six months might hold.”
- The USDOL reports that wages and salaries increased by 3.3% during 2025, slightly lower than anticipated, and benefit costs increased slightly – 3.4% for the same period.
Looking forward to 2026:
- The job outlook for the first half of 2026 shows some positive trends. The USDOL reports that 130,000 jobs were added in January 2026. That’s an amount higher than most economists had anticipated.
- Salary budget forecasts for 2026 range from 3.2% (Mercer/World at Work), 3.4% (Conference Board), and 3.5% (Payscale). These numbers are similar to 2025.
- Benefit costs are expected to increase at the highest rate in 15 years. A recent Mercer survey projects an increase of 6.7% and an average expenditure of $18,500 per employee.
Unemployment
- The US unemployment rate in January 2026 dipped slightly to 4.3%, up from 4.0% in January 2025. Although this number is still not “high”, the numbers have slowly increased through the last half of 2025. Economists have differing opinions on what that means. Some forecast a recession; others cite strong economic indicators like a healthy stock market.
- The consulting firm Challenger, Gray, & Christmas reported that job cuts through the third quarter of 2025 were the highest since 2020 and showed an increase of 24% from the 2024 total. The chart below illustrates these increases:
- Large layoffs at big companies get our attention, but small businesses shed jobs in 2025 as well. The Payroll/Consulting firm ADP reported that companies with fewer than 50 employees shed 120,000 jobs in November. Keep in mind that was just ahead of the holiday shopping season. Read the full report here.
- State unemployment data reported by USDOL trails total US information by 1 month. As of December, 21 states had higher unemployment rates than in December 2024. That’s up from three states in May. South Dakota continues to have the lowest unemployment rate at 2.1%.
Legislative Update
- January 1 means changes to the minimum wage. This year, 19 states and over 40 municipalities raised the minimum wage, resulting in more than 8 million workers receiving wage increases. Keep in mind that not all minimum wage increases happen on January 1 — for example, Florida will increase its minimum wage to $15.00 effective September 1. Stay on top of all the changes by checking out the Economic Policy Institute’s Minimum Wage Tracker.
- On December 31, the enhanced premium tax credits under the Affordable Care Act expired. These enhanced credits were part of the original ACA and were expanded in 2021 during COVID and again in 2022. Recipients of these credits received an average of $550 in monthly premium assistance. Without the enhanced credits, the Commonwealth Fund estimates the average monthly premium increase to be 21.7%. In the absence of federal legislation, several states (CA, CO, CT, MA, MD, NM) have enacted state-funded programs to provide premium assistance. Additional states are expected to pass similar legislation.
- Immigration enforcement continues to be a focus for many communities and employers, creating confusion for companies and fear among their employees and their families who are in the immigration process or legally working under Temporary Protected Status (TPS). For employers, understanding their employees’ concerns and taking a proactive approach to compliance can help you avoid hefty fines and legal challenges. View the I-9 services provided by The Workplace Advisors and email us at Hello@TheWorkplaceAdvisors.com with your questions.
Labor Market Hot Topics
- It seems like everyone is talking about inflation. Is it up? Down? High? Low? The differing opinions are a reflection of all the uncertainty around the US economy. The Consumer Price Index (CPI), which measures the average change over a specified period of time of a representative basket of consumer goods and services, is the most widely used indicator of inflation. The chart below illustrates the changes in the CPI from December 2024 to December 2025.
- While the prices of a few items have remained flat or even decreased (gasoline -3.4%, new vehicles +.3%), other items have soared. Natural gas prices increased by +10.8%, electricity by +7.7%, and fuel oil by +7.4%. Food prices increased by +2.9% — again, not a huge number for 2025, but according to the Bureau of Labor Statistics, food prices are up by +29% since 2020. And wages certainly haven’t kept pace with the increases, resulting in many experiencing a lot of the negative effects of inflation.
- The Federal Reserve functions as the central bank of the U.S. It is responsible for setting monetary policy through interest rate management, inflation management, and market influence. It is expected that the Fed will continue its cautious lowering of interest rates, suggesting multiple smaller rate cuts in the coming year. We think. Stay tuned!
- Despite federal funding to help prepare workers for high-paying skilled trade jobs, the manufacturing skills gap in the US continues to increase, fueled by rapid changes in technology, an aging and retiring workforce, and new hires lacking in necessary skills.
- We will continue to watch the “Frozen Labor Market” in the hopes of a thaw.
Compensation To Do List: First Half of 2026
- Develop your 2026 compensation plan. Identify key tasks for each quarter. It will help you know where you are competitively and will make your year-end go a lot smoother.
- Make changes and enhancements to your commission plans and get goals and objectives in place for non-discretionary bonus and incentive plans.
- Take steps to make sure you understand your competitive market. That means understanding where your new employees come from and where employees who leave go. Your competitive market isn’t only your industry.
- Identify the resources that will help you understand and respond to economic and labor market changes and consult them regularly. These might be national, local, or industry-based.
Take steps to make sure your employees understand their compensation and benefits. One way to do this is by providing them with a Total Rewards Statement. The Workplace Advisors is now offering this service. Contact us at Hello@Theworkplaceadvisors.com for more information.