Weekly Economic & Business Outlook

The Known and Unknown Effect of Tariffs on the Staffing Industry

The Trump administration has announced a series of tariffs including a 25% surcharge on goods shipped from Canada and Mexico and a 10% surcharge on goods from China. These tariffs collectively affect 41% of all U.S. imports, including sectors such as manufacturing, technology, and energy. So, what might be the impact on the staffing industry?

Staffing primarily depends on momentum within the labor market. Today, momentum within the labor market is broadly driven by two trends: labor costs and labor churn. Labor costs remain high, and have to be lower for the labor market to realize increased momentum, while labor churn remains low, and must accelerate for the labor market to realize increased momentum.

The Trump administration has repeatedly emphasized its willingness to employ tariffs as leverage to negotiate better long-term trade relationships with U.S. allies. Hence, they are intended to have a short-term effect unless there is a stalemate in negotiations. In terms of economic disruption, tariffs would likely yield further acceleration in inflation, which would encourage the Fed to maintain or raise interest rates, which would further stall momentum in the labor market. Specifically, tariffs affecting energy prices could be particularly detrimental by raising transportation costs, elevating potential risks to supply chains akin to the surge in inflation in 2022.

Depending on how long tariffs could remain in place, companies could see direct consequences to growth via reduced interest rate cuts as well as indirect consequences to growth via disruptions to global supply chains. But there are still many unknowns governing the extent of these consequences, including elasticities in supply and demand, changing inflation expectations since 2021 and 2022, the speed of price passthroughs into consumer costs, as well as negotiations between the U.S. and its allies.

An incomplete picture regarding tariffs supports the status quo of a low-churn labor market, thereby requiring staffing companies to remain creative and nimble when seeking new business.

Gaining New Skills in a Fast-Changing Landscape

Skills disruption in the labor force has been widespread and rapid over the last three years, according to a recent Lightcast report. As the average job has seen one third of its skills change from 2021 to 2024. While Lightcast notes the top drivers of job change have been related to artificial intelligence (AI), green initiatives, and cybersecurity, companies in all sectors must be mindful of changing skill requirements in a dynamic labor market.

For their part, most workers (70%) feel they currently have the education and training they need to get ahead in their career, according to a recent study by Pew Research.

How can training be made more appealing to workers? Among workers who feel they need more training, a plurality prefers learning on the job (28%), followed by completing a certificate or getting more formal education (24% each), or taking classes/watching online tutorials (13%). Those who completed recent training did so to keep up with requirements in their field (62%), improve job performance (52%), or because their employer required it (45%). Those who did not cited lack of time (43%), inability to afford training (38%), or their employer not covering the cost (28%) as major barriers.

For employers seeking to keep their workforce up to speed in a rapidly changing skills landscape, finding ways for employees to learn on the job or earn a credential or certificate will align with worker preferences in training. On the flipside, workers may be more likely to engage if they have a clear picture of how training and skills development may align with their goals and help them keep up with the expectations and job demands.