Sluggishness in the job market: Experts provide insights
Weakening U.S. Labor Market: Tariffs, Immigration Policy, and Federal Job Cuts Take a Toll
The U.S. labor market is facing a significant slowdown, with unemployment rising and hiring decisions being affected by a combination of factors. According to Daniel Zhao, lead economist at job-listing platform Glassdoor, the rollback of federal employment, fluctuating tariffs, and restrictive immigration policies are all contributing to the weakening of the labor market.
Tariffs: Uncertainty and Economic Strain
Since April 2025, the implementation of tariffs on multiple countries and specific products has led to a sharp decline in job additions. U.S. employers added just 73,000 jobs in July, a significant decrease from the previous average of roughly 128,000 jobs added monthly. The tariffs have created economic uncertainty, with factory managers reporting that they are hesitant to hire due to the unpredictable nature of tariffs and their impact on orders and investment.
Tariffs are also driving up goods prices, fueling inflation concerns and complicating Federal Reserve decisions. According to the Yale Budget Lab, the average effective tariff rate has risen to 18.3%, the highest since 1934. This increase has led to a net negative impact on the economy and jobs, with sectors like construction and agriculture shrinking while manufacturing output may slightly expand.
Immigration Policy: A Significant Labor Supply Shock
Restrictive immigration measures, including the detention of undocumented immigrants at work sites and the revocation of Temporary Protected Status for hundreds of thousands of immigrants, have led to a significant drop of 1.7 million foreign-born workers between March and July 2025. This reduction has hindered employers' ability to find workers, thereby slowing job market growth.
Immigrants have historically accounted for over half of U.S. workforce growth in the past three decades, so their decline represents a notable labor supply shock adding to trade policy pressures. According to Gregory Daco, chief economist at accounting firm EY, the decline in foreign-born workers makes it more difficult for employers to find and hire employees, hindering job market growth.
Federal Job Cuts: Exacerbating Employment Challenges
The federal government has shed approximately 84,000 jobs since January 2025, contributing to downward pressure on overall employment. While these cuts alone have not been sufficient to cause the entire labor market slowdown, they exacerbate the broader employment challenges created by trade and immigration policies.
Additional Dynamics: Labor Force Participation and Wages
Additional dynamics include a drop in labor force participation, with nearly 40,000 workers leaving the workforce recently. The labor market is also characterized by low hiring rates and increased worker anxiety, which discourages job mobility and prolonged unemployment spells for many. Despite the weakening job market, wages grew by about 3.9% year-over-year.
Conclusion
In summary, Trump's trade tariffs have created economic uncertainty that suppresses hiring and manufacturing employment, restrictive immigration policies reduce the labor supply critical to growth, and federal job cuts compound overall employment weakness. These factors combined have slowed job creation, increased unemployment slightly, and raised costs for consumers and businesses, thereby straining the U.S. labor market.
References:
- Bloomberg
- Reuters
- CNN Business
- National Foundation for American Policy
- New York Times
The decline in hiring and manufacturing employment might also be attributed to the economic strain caused by tariffs, as stated by experts analyzed by Bloomberg.
Internationally, restrictive immigration policies are seen as a significant labor supply shock, with the detention of undocumented immigrants and revocation of Temporary Protected Status for numerous immigrants causing a drop of 1.7 million foreign-born workers between March and July 2025, according to the National Foundation for American Policy.
In business news covered by Reuters, the rollback of federal employment has led to approximately 84,000 job cuts since January 2025, which exacerbate the employment challenges created by trade and immigration policies.
Finally, the labor market is experiencing a slowdown due to the combined impact of these factors, manifested in increasing unemployment, decreased labor force participation, and growing concerns about inflation and consumer costs, as reported by CNN Business and the New York Times.
