Weekly Economic & Business Outlook

New Year, New Goals for the Labor Market’s Health

The staffing industry saw continued, though moderating, demand in 2024 due to two main factors: elevated labor costs and reduced labor churn. As shown by the chart below, labor costs and churn are running above and below their respective averages during the last economic cycle. Therefore, improvement in staffing demand will depend on lower labor costs and higher labor churn, returning toward their respective long-term trends. In addition to the usual factors like inflation and interest rates, 2025 could see even more volatility due to policy uncertainties engendered by a new administration. 

To better understand their impact on the labor market’s health and consequent demand for staffing, it is important to examine how Trade, Tax, Regulatory, and Immigration policies (TTRIPs) affect labor costs and churn.

• Trade Policy: Tariffs have broadly been shown to decrease labor churn owing to economic inefficiencies as well as higher costs for businesses and consumers. If the Trump Administration were to engage in a protracted fight with China, U.S. companies could seek to trim headcount to shore up capital, thereby reducing labor churn. However, for certain sectors that are protected by tariffs, there may be job creation and labor churn stemming from reduced competition from abroad.
• Tax Policy: An extension of the Tax Cuts and Jobs Act (TCJA) alongside further tax exemptions will provide employees more financial flexibility to pursue new opportunities within the labor market, strengthening their bargaining position with employers and improving labor leverage. Additionally, relaxing certain corporate taxes could see lower labor costs which foster more hiring by U.S. companies.
• Regulatory Policy: Deregulation in a second Trump administration would likely begin by using the Congressional Review Act to review and repeal many Biden-era rules. These rules covered a variety of issues such as Social Security and Medicare payments, climate change compliance, and enhanced consumer protection initiatives. Their repeal could also spurn lower labor costs as well as increased hiring by U.S. companies.
• Immigration Policy: While mass deportations are unlikely, increased compliance standards, as well as general scrutiny on businesses, would likely yield a short-term labor shortage that fosters increased demand for domestic workers thereby bolstering labor churn. However, elongated labor deficits in industries that cannot adapt to this new status quo could see renewed focus on productivity and capital investments that reduce the need for talent altogether.

Return-to-Office Mandates May Push Top Talent Away

With the minority of U.S. firms currently fully in-person, many assume that remote work has become a permanent fixture within the labor market of tomorrow. However, 2025 will put that to the test. Major corporations such as Amazon, Dell, and others have recently announced they will strictly enforce their companies’ in-person work policies, telling employees to return to the office or turn in their badges. Are these giants merely bucking the trend or will they kick-off a widespread return to the office?

RTO mandates are intended to increase productivity. As labor costs remain high, efficiency is critical for retaining competitiveness, and with a low quits rate in a softening labor market, employers may now feel they have the leverage to enforce a return to the office. But will this have the intended effect? Research suggests not, however; according to Stanford economist Nick Bloom, other companies may likewise adopt RTO mandates simply due to the reputations of firms like Amazon. Bloom believes the productivity gains of in-person work taper off after the third or fourth day in-office. 

Another study from researchers at the University of Pittsburgh analyzed data from 2020–2023 and found that companies that implemented RTO mandates saw hard-to-replace, high-performing workers quit, especially in the finance and technology sectors. Companies in these fields saw a 14% increase in quits compared to prepandemic levels, with quitters more likely to have occupied mid- to top-level positions in their organizations. In addition, the time to fill empty positions increased 23%. 

Citing Bloom’s research, in 2022 most workers said they would comply with a fully in-person schedule. By the end of 2024, that decreased almost 10 points to 44%. Most workers now would rather look for a new job (42%) or quit (14%) if faced with such a demand from their employer. If more companies follow suit and adopt stricter RTO policies, staffing firms should realize the opportunity in connecting the influx of high-quality workers who desire flexibility.