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An elongated inversion in the wage premium between job switchers and job stayers is another example of the unhealthy direction in which the labor market is trending. With fewer employees motivated to quit, leverage will remain firmly in the court of employers.
The labor market remains healthy but is trending in an unhealthy direction. Despite healthy levels of job creation and unemployment, the three-month average of nonfarm payroll growth has declined over the past year while risks toward additional separations from the workforce remain elevated. However, the labor market received another grim indication of lacking churn last week: The wage premium between job switchers and job stayers remained inverted for a fifth consecutive month, the longest such stretch since the recovery from the Great Recession.
During times of healthy labor churn, quits among employees rise as their leverage to successfully find a better opportunity increases. Higher pay is a common motivation among employees who quit, and the trade-offs for doing so are measured by this wage premium between job switchers and job stayers. Put simply: When the wage premium is positive, it means job switchers are more likely to be financially rewarded by earning a higher salary through switching jobs. However, when the premium is negative, job switchers are at a financial disadvantage compared to those who stay put, a likely result of few opportunities and greater leverage of employers to offer salaries that are below-market value.
An elongated inversion in the wage premium between job switchers and job stayers is another example of the unhealthy direction in which the labor market is trending. With fewer employees motivated to quit, leverage will remain firmly in the court of employers, suggesting that necessary turnover to include those workers on the sidelines will remain sluggish. These wage dynamics are likely to also be a drag on the staffing industry, with workers less encouraged to find a new assignment without healthy wage gains.
A penetration rate rebound will rely upon improvements in general macroeconomic conditions to restore client confidence and thaw the hiring freeze.
The persistent issue of slacking client-side demand has grown as a top concern among staffing agencies, according to the 2025 State of Staffing Benchmarking Report, published last week. Finding new clients has become the top challenge for almost a quarter (23%) of staffing firms (up from 16% in 2024) and only 12% of agencies report facing a shortage of candidates (down from 17% in 2024.) The source of this shift is no doubt the fact that clients today are currently holding their breath in case of an economic downturn, choosing to postpone and be meticulously selective about their hiring decisions in the face of uncertainty.
The result of growing client hesitancy has been a gradual decrease in the staffing penetration rate as a proportion of total nonfarm employment. Between 2022 and 2025, staffing’s share of total nonfarm employment declined across most economic sectors. The penetration rate declined from a record high of 2.1% in 2022 down to 1.5% today, a near record low that is closer to the troughs of the post-2008 and 2020 recessions than is it to during “normal” economic levels.
The light industrial vertical, which makes up the plurality of total staffing employment, saw the most notable relative decrease in the penetration rate, especially in transportation and warehousing, which saw a 1.0% attrition from 2022 to 2025. Only the educational services sector saw a greater relative drop in the penetration rate (-1.4%); however, that sector consists of a minor segment of the industry in terms of total employment.
A penetration rate rebound will rely upon improvements in general macroeconomic conditions to restore client confidence and thaw the hiring freeze. Until then, staffing agencies will continue to be affected by client shortages and should look toward pivoting to offer employment services beyond traditional temporary staffing to weather this period of depressed labor demand. The July 7 edition of the ASA Economic and Staffing Forecast, led by ASA chief economist Noah Yosif, predicted slight year-over-year growth for the industry in the last quarter of 2025. While this could mark a potential turning point, staffing firms should remain cognizant that the industry’s recovery is still in a precarious position reliant on changes in broader economic currents.
