Insights

The pace of job growth cooled through mid-2025, while the unemployment rate rose relatively little. This seeming puzzle is explained by an even stepdown of labor supply and demand, meaning slowing labor force growth coincided with a slowdown in job growth. The recent decline in job growth is broad based across industries, suggesting a widespread softening of labor demand. For the labor force, recent declines are driven by changes in immigration flows and declining labor force participation. Together, these factors may signal some underlying fragility in the labor market.

A substantial and unexpected rise in women's labor force participation rates over the past few years has been a key factor spurring rapid labor force growth. In particular, Hispanic women have made a disproportionately large contribution to post-pandemic growth in prime-age women's participation rates. Analysis shows that this group's increase was driven by both a rise in labor market participation over the life cycle within generational cohorts and notably higher participation rates among younger generations than older generations' participation when they were the same age.

Employment growth has consistently come in above pre-pandemic estimates of the rate needed for unemployment to stay near its long-run natural rate. Even so, unemployment has held steady, which raises the question of whether the "breakeven" employment growth rate has changed. In the short-run, recent surges in immigration and labor force participation have caused the current breakeven employment growth rate to rise as high as 230,000 jobs per month. However, the long-run breakeven employment growth rate appears unchanged, ranging around 70,000 to 90,000 jobs per month.

Workers age 55 and older left the labor force in large numbers following the onset of the COVID-19 pandemic. Four years later, participation within this age group has yet to return to pre-pandemic levels, despite the strongest labor market in decades. This has resulted in an estimated shortfall of nearly 2 million workers. Analysis shows that the participation shortfall is concentrated among workers in this age group without a college degree and can be explained by increased and growing retirement rates for this group, above pre-pandemic trends.

Inflation has climbed since 2021, as the labor market has tightened. Two historical data relationships can account for elevated inflation over the past two years: the Beveridge curve, which relates job vacancies and unemployment rates over the business cycle, and a nonlinear version of the Phillips curve, which links inflation to labor market slack. Combining estimates of the two curves implies that inflation can fall in conjunction with a "soft landing" for the economy if labor market easing is achieved mainly by reducing job vacancies rather than increasing unemployment.

As U.S. economic growth slows this year, a key question is whether job openings can fall from historical highs without a substantial rise in unemployment. Analyzing the current Beveridge curve relationship between unemployment and job openings presents a meaningful possibility that labor market pressures can ease and achieve a "soft landing" with only a limited increase in unemployment. This view is supported by high rates of job matching in the U.S. labor market in 2022, despite ongoing employment reallocation across industries.

Before the pandemic, the U.S. unemployment rate reached a historic low that was close to estimates of its underlying longer-run value and the short-run level associated with an absence of inflationary pressures. After two turbulent years, unemployment has returned to its pre-pandemic low, and the estimated underlying longer-run unemployment rate appears largely unchanged. However, economic disruptions appear to have pushed up the short-run noninflationary rate substantially, as high as 6%. Examining these different measures of the natural rate of unemployment can provide useful insights for policymakers.

Unemployment insurance benefits were expanded substantially to help overcome the pandemic labor market shock in early 2020. However, improved labor market conditions in early 2021 prompted many states to withdraw from the enhanced unemployment benefits programs several months before the federal program was scheduled to end in early September. A comparison of states that ended enhanced benefits early with those that maintained them suggests that the withdrawal is associated with a small pickup in employer hiring, consistent with prior studies that found the unemployment benefit expansions had modest effects.

Gender gaps in labor market outcomes during the pandemic largely reflect differences in parents' experiences. Labor force participation fell much less for fathers compared with other men and all women at the onset of the pandemic; the recovery has been more pronounced for men and women without children. Meanwhile, labor force participation among mothers declined with the start of the school year. Evidence suggests flexibility in setting work schedules can offset some of the adverse impact on mothers' employment, while the ability to work from home does not.

The onset of the COVID-19 pandemic and the unprecedented slowing of economic activity that followed caused severe disruptions to labor markets around the globe. In contrast to the United States, European Union countries funded short-time work programs to maintain jobs during a period of lockdown that was expected to be transitory. This succeeded in avoiding sharp increases in unemployment early in the recession. However, if the pandemic leads to a permanent reallocation of economic activity, short-time work programs may slow the process of workers moving from shrinking to growing sectors of the economy.

People receiving unemployment insurance benefits during the COVID-19 recession were entitled to $600 of additional payments per week through July. This large increase in benefit payments raised a concern that recipients would delay returning to work. However, analysis suggests that the available aid would not outweigh the value of a longer-term stable income in workers' decisions to accept job offers. Evidence from recent labor market outcomes confirms that the supplemental payments had little or no adverse effect on job search.

The COVID-19 pandemic has upended the U.S. labor market, with massive job losses and a spike in unemployment to its highest level since the Great Depression. How long unemployment will remain at crisis levels is highly uncertain and will depend on the speed and success of coronavirus containment measures. Historical patterns of monthly flows in and out of unemployment, adjusted for unique aspects of the coronavirus economy, can help in assessing potential paths of unemployment. Unless hiring rises to unprecedented levels, unemployment could remain severely elevated well into next year.

Unemployment is running near its 50-year low, but inflation has not picked up as expected. This suggests that the unemployment rate consistent with stable inflation has fallen. Combining a conventional Phillips curve tradeoff between unemployment and inflation with a noninflationary unemployment rate that can change over time shows that estimates of this unemployment threshold have declined toward 4% in recent years. One possible reason for this decline is improvements in how job matches are made, reflected in unusually favorable job-finding rates for disadvantaged groups.

Labor force participation among U.S. men and women ages 25 to 54 has been declining for nearly 20 years, a stark contrast with rising participation in Canada over this period. Three-fourths of the difference between the two countries can be explained by the growing gap in labor force attachment of women. A key factor is the extensive parental leave policies in Canada. If the United States could reverse the trend in participation of prime-age women to match Canada, it would see 5 million additional prime-age workers join the labor force.

Job mobility in the United States has been slowing for almost two decades. The most prominent measure of mobility is direct transitions from one job to another. This measure has declined substantially among young workers ages 16 to 24 since the late 1990s, which helps explain the majority of the overall decline in job-to-job transition rates. However, for workers ages 25 and older, the labor market is essentially as dynamic today as it was 20 years ago.

The percentage of people active in the labor force has dropped substantially over the past 15 years. Part of this decline appears to be the result of secular factors like the aging of the workforce. However, the participation rate among people in their prime working years—ages 25 to 54—has also fallen. Recent research suggests this decline among prime-age workers can be attributed in large part to lower participation from among the higher-income half of U.S. households.