The 2026 Labor Market Outlook: Shifts HR Leaders Should Prepare for Now

If you're leading hiring right now, you may be hearing two messages that don't neatly align:

• "The market is cooling—shouldn't recruiting get easier?"
• "We still can't fill the roles that matter most."

Heading into 2026, that push-pull is likely to continue. Many forecasts point to modestly higher unemployment and slower payroll growth—while talent scarcity persists in critical occupations due to demographic and policy-driven labor supply constraints. For HR leaders and hiring managers, the goal isn't to "wait and see." It's to make your hiring strategy more targeted, more resilient, and more efficient.

Below, Diag Partners breaks down what's changing in the 2026 labor market, what's likely to stay consistent, and what you can do now to hire with clarity.

2026 labor market trends: Slower growth, selective hiring, and ongoing scarcity#

Many employers are planning for a softer hiring environment—one where approvals take longer, budgets are scrutinized, and candidates are more cautious about making a move. At the same time, skill shortages and labor supply constraints are expected to persist, especially in roles where experience isn't easily replaced.

J.P. Morgan projects unemployment may peak around 4.5% in early 2026, with monthly job gains potentially slowing to 15,000–50,000 amid a mix of trade policy shifts, immigration restrictions, and an aging workforce. Other research suggests overall hiring has cooled from 2021–2022 highs globally, driven more by macroeconomic conditions like interest rates than by AI disruption.

For employers, the implication is straightforward: a slower market doesn't automatically make hiring "easy." It often makes it more selective, more competitive in priority roles, and more dependent on process quality.

Slower job growth, but not necessarily "back to normal"#

Job openings are expected to stabilize rather than surge, and worker confidence has cooled—evidenced by a quits rate that remains lower than pre-pandemic levels. In practical terms, that can mean:

• Fewer candidates voluntarily leaving stable roles
• Longer decision cycles from candidates who do engage
• Increased sensitivity to total compensation, flexibility, and team stability

Labor supply constraints remain a real driver of talent scarcity#

Several sources highlight the same issue from different angles: the workforce is aging, and policy shifts can reduce available labor supply.

J.P. Morgan points to stricter immigration and an aging population as labor supply headwinds. Indeed's Hiring Lab also notes tight labor supply in areas like construction, hospitality, engineering, and medicine, tied in part to reduced migrant workforce availability.

Skills mismatches may extend time-to-fill#

A slower market doesn't solve skills mismatches—it can amplify them. When hiring slows, employers may become more selective, while candidates may struggle to pivot if their experience doesn't clearly align to open roles.

J.P. Morgan notes persistent skills mismatches contributing to stagnant hiring and longer unemployment durations, especially outside healthcare.

Growth will likely be uneven by industry#

Longer-term projections still show growth—just concentrated. The Bureau of Labor Statistics projects total U.S. employment will grow by 5.2 million jobs (3.1%) from 2024–2034, led by healthcare.

Meanwhile, certain roles are expected to be in demand nearer term. AARP cites projected growth for roles like accountants and auditors (+72,000 jobs) and delivery drivers (+118,700 jobs), reflecting both business needs and consumer behavior shifts.

What this means for employers: even if overall hiring feels slower, "hard-to-hire" roles will likely remain hard-to-hire—particularly where training pipelines are thin or turnover is high.

Remote and hybrid work trends in 2026: Flexibility as a competitive operating model#

Remote work models are no longer a temporary perk—they're part of the competitive landscape.

Multiple sources point to the persistence of remote and hybrid work, with flexibility continuing to influence attraction and retention. While prevalence varies by industry, the strategic takeaway is consistent: employers who treat flexibility as a deliberate operating model (not an exception) are often better positioned to compete.

Why remote work models still matter in 2026#

Remote and hybrid options can help employers:

• Expand candidate pools beyond a single commuting radius
• Improve retention for high performers who value flexibility
• Support hiring across niche skill sets (where local supply is limited)

AARP also notes that remote or flexible opportunities may appeal to older workers—an increasingly important talent segment as the population ages.

A common risk: inconsistent expectations#

In practice, some of the biggest hybrid-work challenges come from unclear expectations—especially when a company's stated model and the day-to-day reality don't match.

If your teams are hybrid, align on the basics:

• Which roles are eligible, and why
• What "in-office" actually means (days, purpose, expectations)
• How performance is measured consistently across locations

Clarity reduces late-stage renegotiation, supports onboarding, and strengthens candidate trust.

How recruiting tech and AI will shape 2026 hiring#

When hiring slows, efficiency matters more—not less. That's one reason recruiting tech adoption, including AI in Recruiting, continues even in cautious markets.

AI isn't the main reason hiring slowed—but it is reshaping work#

Research suggests the post-2021 hiring cooldown has been driven primarily by macroeconomic factors such as interest rates—not widespread AI-driven job displacement. J.P. Morgan similarly notes AI is creating high-skilled roles but has not yet displaced workers at scale, and productivity gains may materialize later.

That said, AI is already influencing how work is done—and how hiring is executed.

Where AI in Recruiting can help (and where it can hurt)#

Used well, AI-enabled tools can support:

• Faster scheduling and candidate communication
• Better search and match across internal databases
• More consistent screening when paired with clear criteria
• Improved reporting across funnel stages

Used poorly, AI can create candidate experience issues:

• Over-filtering qualified applicants due to rigid criteria
• Generic messaging that reduces response rates
• Unclear decision logic that frustrates hiring teams and candidates

A balanced approach matters—especially as HBR notes the current wave of AI impact includes organizational disruption, with layoffs potentially outpacing near-term productivity gains in some cases.

The real unlock: align process, people, and tools#

Tech doesn't fix a broken hiring process—it amplifies whatever already exists.

Before adding new tools, tighten the fundamentals:

• Clean job requirements (skills-based where possible)
• Clear evaluation scorecards
• Defined interview responsibilities
• Candidate communication standards

Then apply tech to scale what works.

Compensation and benefits strategy for a cautious 2026 candidate market#

As quits remain lower and candidates weigh risk carefully, compensation conversations tend to get more detailed—not just "What's the salary?" but "What's the total picture, and how stable is it?"

A practical approach for 2026 is to make your compensation philosophy easier to understand and defend:

• Clarify the pay range and how you set it. Even when you can't share every detail, transparency about level, range, and growth path often reduces offer-stage friction.
• Recheck internal equity before you recruit aggressively. In slower markets, offer approvals may be harder to secure—so prevent avoidable rework by aligning internally early.
• Build benefits around retention risks, not just tradition. Many employers are emphasizing benefits that support employees through uncertainty—financial wellness resources, mental health support, and flexible leave policies are common examples.
• Match flexibility to the role, then communicate it plainly. If a role is on-site for operational reasons, candidates typically respond better to clear rationale than vague promises.

The goal isn't to "outspend" the market. It's to reduce uncertainty for candidates and align your offer with what your workforce will value most.

Internal mobility and upskilling: A practical hedge against skills shortages#

If skills mismatches persist and supply constraints remain real, one of the most reliable ways to protect hiring plans is to grow more of the capability you need.

Internal mobility and upskilling can help you:

• Fill roles faster when external pipelines are thin
• Improve retention by creating visible career paths
• Reduce risk when budgets for external hiring tighten

To make it actionable:

• Identify "adjacent-skill" feeder roles for your hardest-to-fill jobs (for example, mapping internal roles that can move into specialized ops, analytics, or technical tracks with structured training).
• Define a 60–90 day ramp plan for trainable skills—so hiring managers can say "yes" to candidates who meet core requirements but need targeted development.
• Promote internal opportunities consistently (not informally), so high performers don't miss pathways because they lack proximity to decision-makers.

This approach aligns well with forecasts that highlight persistent skills mismatches as a drag on hiring momentum.

The evolving candidate experience in 2026: What job seekers will expect#

In a softer market, candidate behavior can become more cautious and more selective—especially for employed candidates who don't feel pressure to move quickly. That makes the candidate experience a real lever: not "extra polish," but an operational advantage.

Focus areas that tend to matter most:

• Transparency: Be clear about role scope, success measures, team structure, and work model early.
• Responsiveness: Long gaps between steps can be interpreted as internal uncertainty—something candidates often try to avoid in 2026-style conditions.
• Security signals: Without overpromising, candidates appreciate context—why the role exists, what success looks like, and how the team is supported.

Even when you can't move fast, you can communicate clearly—and that consistency builds trust.

Practical takeaways: Hiring strategy actions aligned to 2026 forecasts#

If 2026 brings slower growth alongside persistent scarcity in key roles, employers who succeed will typically be the ones who reduce uncertainty for candidates and remove avoidable friction for hiring teams.

1) Prioritize roles based on strategic business impact rather than reactive urgency#

Why it matters for 2026: with approvals taking longer and job gains potentially slowing, recruiting teams can't afford constant reprioritization.

Create a quarterly priority map:

• Revenue protection (customer success, key ops roles)
• Revenue growth (sales, high-impact product roles)
• Risk mitigation (finance, compliance, safety)

This reduces hiring churn and protects your employer brand when approvals slow.

2) Use skills-based hiring to widen viable pipelines (without diluting standards)#

Why it matters for 2026: persistent skills mismatches can keep roles open longer—even in a cooler market.

Rewrite job requirements to reflect:

• Must-have skills (non-negotiable)
• Trainable skills (learnable in 60–90 days)
• Nice-to-haves (not screen-out criteria)

This change often has the potential to expand your candidate pool while keeping evaluation standards clear.

3) Counteract candidate hesitation with decisive, consistent next steps#

Why it matters for 2026: when quits are lower and candidates are more risk-aware, delay can be interpreted as uncertainty.

Set internal service-level targets:

• Resume review within 48–72 hours
• Interview feedback within 24 hours
• Clear next step communicated after every touchpoint

Even if your offers aren't the highest, decisiveness can be a meaningful advantage.

4) Treat remote and hybrid models as a stated talent strategy#

Why it matters for 2026: flexibility continues to influence attraction and retention, and it may broaden access to older workers and niche skill sets.

If you offer hybrid or remote options, define them clearly in job postings and recruiter conversations to prevent late-stage surprises that lead to declined offers or early attrition.

5) Use AI in Recruiting to remove friction—not replace accountability#

Why it matters for 2026: hiring slowdowns are largely macro-driven, but operational efficiency still matters—especially as AI adoption reshapes workflows.

Choose specific, measurable use cases:

• Automate scheduling and reminders to reduce no-shows
• Summarize candidate notes consistently (with human review)
• Improve rediscovery of past applicants for repeat roles

Make sure a human is accountable for the final decision—and for the candidate experience.

6) Build pipelines early for roles likely to remain constrained#

Why it matters for 2026: labor supply pressures and uneven industry growth can keep certain jobs scarce even as hiring cools.

For these roles, don't wait until the requisition opens.

Build a pipeline early, maintain warm outreach, and keep compensation and flexibility aligned with the real market.

Conclusion#

The most important 2026 hiring insight is simple: a softer labor market doesn't eliminate competition—it changes what you're competing on.

With unemployment projected to rise modestly and job growth expected to slow, employers will benefit from sharper priorities, stronger processes, and better alignment between recruiting tech and human decision-making. Remote and hybrid work models remain a lever for attraction and retention, and AI in Recruiting is most effective when it reduces friction rather than replacing judgment.

If you want a hiring plan built for 2026 realities—talent scarcity where it counts, cautious approvals, and evolving candidate expectations—Diag Partners can help.

Contact Diag Partners for expert recruiting advice and support. Whether you're hiring for one critical role or building a long-term talent strategy, we'll help you move with clarity and confidence.

FAQ#

Will the job market improve in 2026?#

Forecasts suggest unemployment may rise modestly and peak around 4.5% in early 2026, while job growth slows in the first half of the year, with potential improvement later depending on productivity and policy factors.

If unemployment is higher, will hiring be easier?#

Not necessarily. Scarcity can persist in specialized roles due to labor supply constraints (aging workforce, immigration impacts) and ongoing skills mismatches—meaning certain jobs remain difficult to fill even in a softer market.

Are remote work models still relevant for attracting talent?#

Yes. Remote and hybrid work models continue to influence candidate decisions and can expand your talent pool, especially for niche skill sets and candidates who prioritize flexibility.

How should employers think about AI in Recruiting?#

AI in Recruiting can improve efficiency (scheduling, matching, reporting) when paired with clear criteria and human oversight. The best results typically come from using AI to reduce process friction while keeping humans accountable for evaluation and candidate communication.

Which industries are expected to keep growing?#

Longer-term projections show growth led by healthcare, with total U.S. employment projected to increase by 5.2 million jobs from 2024–2034. Near-term demand also appears in roles like accounting and delivery/logistics in certain forecasts.