Although the labor market has not yet seen an uptick in unemployment or layoffs, the fact that its momentum rests on a handful of sectors, companies, as well as conditions beyond their control is a major risk that could lead to such results.
Fridayā€™s no-good, very-bad jobs report was the result of a labor market which has, for far too long, relied on a handful of sectors to produce the majority of its job gains. Over the past two years, cumulative job gains has been limited to three sectors: health care; leisure and hospitality, and construction. In years prior, government was also a major contributor to overall job gains prior to significant reorganization of the federal workforce. This consolidation of new opportunities in the labor market led to a very predictable failure that was realized in Februaryā€™s jobs report.
Health care lost 28,000 jobs, largely due to strikes among nurses as well as other frontline staff at Kaiser Permanente that were only recently resolved. Similarly, inclement weather affecting large swaths of the Northeast and Midwest forced disruptions in construction as most such work is often done outside. While health care and construction face unique labor dynamics, namely, persistent personnel shortages within key positions like nursing or craftsmen, which has enabled nonfarm payrolls to often appear better than they really are, it has also left the labor market one strike or snowstorm away from a major collapse as was evidenced by Februaryā€™s jobs report.
Although the labor market has not yet seen an uptick in unemployment or layoffs, the fact that its momentum rests on a handful of sectors, companies, and conditions beyond their control is a major risk that could lead to such results. Until policy and the economy can convince more employers to begin opening their payrolls again, these unique risks could become more pronounced in future reports.
With many companies using multiple sources to benchmark their pay, staffing professionals need to be prepared to discuss the market rate for a given role with clients, or help bridge the gap between a candidateā€™s targeted wage and what the market reality is.
Companies were cautious about hiring in 2025, according to Payscaleā€™s 2026 Compensation Best Practices Report: 43% said they hired actively across most departments last year, but a third hired selectively for critical or high-priority roles only. Workers were conservative as well, with voluntary turnover hitting just 8%, one of the lowest rates ever recorded. In a cooling labor market and challenging business environment, organizations are facing several key challenges related to compensation strategy.
Many organizations are finding it difficult to balance worker pay expectations against financial constraints, with 51% citing this as their top challenge. Contributing to this challenge is the prevalence of unverified sources spreading incorrect information about salary and driving potentially unrealistic pay expectations. To combat this, it is important to benchmark salary bands, preferably by industry. On average, companies used three different data sources to gauge the market rate for different roles, with two-thirds of companies feeling confident in their pay benchmarking strategy.
One skill area that has yet to impact pay trends is AI. More than half of companies report offering no additional premiums, bonuses, or equity for employees who have built out their AI skillset, even as companies are beginning to rewrite roles to require AI skills, or create new AI-specific roles entirely. As more becomes known about the value of AI skills, it may be that firms will need to update their pay considerations to account for these skills in hiring.
In todayā€™s labor market, understanding the pay and benefit landscape is crucial for staffing professionals. With many firms using multiple sources to benchmark their pay, staffing professionals need to be prepared to discuss the market rate for a given role with clients, or help bridge the gap between a candidateā€™s targeted wage and what the market reality is.
