My predictions for the 2026 U.S. job market and what it means for us.
February 6, 2026
By Aaron Lawlor
I spent my vacation in a mostly AI-unassisted rabbit hole (except for Gemini summaries of search results), swapping between reading about AI, financial and labor market trends; learning about the historical and prognosticated pace of innovation; and studying the past and present views on leading indicators to economic recession…all through the lens of the U.S. labor market.
I've read bits and pieces, but haven't seen what I am about to share in one place in a way that connects the dots on what it all means for us.
Part One - I cover my thoughts on the employment outlook in this post, including:
What is the near-term outlook for the job market?
What is AI’s actual impact on the current and near-term job market?
Is there an AI bubble, and will it burst in the near term, or will the bull stock market continue?
Part Two - I will cover what it means for those of us in the workforce in my next post later in February. Things that are top of mind include:
What employees and employers need to do immediately based on this forecast.
How is the quickening pace of innovation changing how we adapt professions and jobs?
What skills will be durable through innovation cycles/waves?
What do employees and employers need to prepare for to manage through chronic, sustained uncertainty, and what is and isn’t our role in a healthy workplace?
Near-term outlook for the job market
Uncertainty will continue to underpin and restrain hiring
I had a mantra when I served as County Board Chairman of Illinois’ third-largest county, which was home to 12 Fortune 500 headquarters. Our job as government was to “create a stable and predictable environment where businesses can thrive.”
The current outlook on government action is anything but stable and predictable. Market concerns over tariffs, independence of the Federal Reserve, threats of new foreign conflicts, energy supply and costs, federal government debt cliffs, possible contraction of access to credit, and immigration policy and its impact on economic growth will dominate business thinking and result in less job creation and backfilling of existing jobs in the near-term. Employees will be less likely to leave their jobs, especially older individuals who will stay in the workforce, delaying retirement and decreasing opportunities for younger workers to move up.
Analysts’ outlooks on 2026 read like they are afraid to spook the markets
Most analyst outlooks for 2026 reference uncertainty or volatility, with some predicting a continued bull market, others expecting nominal growth, and others bracing for a market correction. The vibe I get from reading several reports is that they are afraid to say the quiet part out loud and are actually much more concerned than they let on.
Morgan Stanley opted for a cautious tone, saying, “The year ahead brings an unusually broad range of possibilities for inflation and global growth.” Meanwhile, Goldman Sachs Research calls the labor market “the most uncertain piece of the 2026 outlook.”
Both Goldman Sachs Research and JP Morgan predict unemployment will peak at ~4.5%, with Goldman Sachs stating that flattening the unemployment rate trend requires the U.S. to create 70,000 jobs per month (40% more than 2025), which will be buoyed by tax breaks and rate cuts.
In my view, this prediction is unrealistic, and unemployment will increase above 4.5%.
I don’t see how stimulus interventions like tax and rate cuts will overcome what feels like unprecedented, multi-factorial uncertainty and generate 40% more job creation than last year. Add to the equation the fact that many businesses are still living the hangover of post-Covid over-hiring.
We are moving from what has been described as a “low hire, low fire” environment to one that is “low hire, higher fire.’ The question is, can employers sustain this workforce strategy and still collectively grow GDP?
Healthcare and construction jobs will drive overall employment numbers
Elimination of government jobs and massive corrections in job creation numbers grabbed headlines in 2025, but the real bellwether to watch is healthcare and construction/skill trades jobs.
On average, the U.S. created 49,000 jobs per month, of which healthcare was responsible for 70% (34,000) positions, down 40% from 2024, according to the Bureau of Labor Statistics.
Healthcare job growth will slow in 2026 and 2027. Medicaid cuts and changes to related rules, 1.4 million fewer people enrolling in Affordable Care Act health plans, and pressures on state budgets, which are driven by entitlement programs (including threats of targeted federal funding cuts), will put continued pressure on healthcare organizations to become more efficient (likely with fewer employees). Look for 0-2% Medicare rate increases in 2027 to further chill growth in healthcare jobs next year, particularly in traditional care settings. Meanwhile, government and managed care organizations will likely be looking for cheaper, more efficient, and scalable healthcare solutions that will likely result in continued growth in the health tech sector.
Impacts to jobs tied to rural health systems will be under particular pressure, and it is unclear whether the $10 billion per year (over five years) investment the One Big Beautiful Bill will compensate for the above losses. 1,800 rural hospitals (and many others vying for the funds) means that, at best, a rural hospital would receive $5.5 million a year for five years or 8% of their average operating budget.
Increases in skilled labor jobs, fueled by the construction and maintenance of AI data centers, are likely to compensate for some of the job losses in other areas. However, even if there is enough investor appetite to continue to fund data center construction at an impressive pace, there simply isn’t enough capacity in the nation’s energy grid to feed them with electricity in the immediate-term. Meanwhile, there are serious concerns about the ongoing demand for AI-related capital expenditures (capex) debt (more below). This makes me skeptical that the U.S. will achieve the <70,000 new jobs per month needed to stabilize the unemployment rate.
Further, restrictions on U.S. immigration of highly skilled workers and foreign students, along with decreasing or eliminated federal investment in science and research, will be a near-term and long-term drag on annual U.S. growth rates.
AI’s impact on the current and near-term job market
AI’s current role in job elimination is not what many think. It is less about task replacement and more about resource reallocation.
There are reports of entry-level jobs being eliminated and replaced by AI agents, research workflows, and the like, but a lot of it is clickbait with AI-attributed layoffs making up roughly 55,000 (3%) of 1.7 million total job eliminations and terminations in 2025, according to the Bureau of Labor Statistics.
The data summarizes what I’ve heard in talking to HR leaders. At McLean & Company’s Signature Event in November 2025, HR thought leaders recapped 2025 as the year where companies attempted and failed to launch meaningful agentic AI but predict 2026 will be the year where they will breakthrough. Based on this and other research, my sense is AI-driven job elimination increases significantly this year (~200% is a guess) and will continue to focus on task automation, including routine customer service and scheduling transactions, among others as well as creative, analytics, and coding vocations. As an example, Optum recently rolled out an AI-powered tool to accelerate prior authorizations. Deep opportunities for process automation in the healthcare sector are another reason it is unlikely to continue to buoy job the broader job creation numbers.
Even with all of that, in the current landscape, the predominant reason for AI-related job elimination is simpler.
In order for AI to trigger job elimination on a large scale, tech companies must achieve Artificial General Intelligence (AGI). We aren’t there yet, but certainly the first company to win the AGI arms race will have what some are calling “AI supremacy,” aka a massive advantage. To get to AGI, big tech is making enormous investments in capex, which are being funded by shifting strategic priorities and freeing up cash as well as taking on unprecedented amounts of debt (which requires additional debt service)…all resulting in pressures to cut costs and headcount. This pressure will only increase as debt service costs grow in 2026 and, especially, if investor appetite to continue to fund debt cools and debt becomes more expensive.
Based on this and the aforementioned climate of uncertainty, over 100 companies have filed WARN Act notifications of impending layoffs of 50 or more people, setting up 2026 for continued large-scale layoffs following 2025, which saw a 54% increase in workforce reduction announcements.
Notably, Amazon recently announced a new round of 16,000 layoffs while also sharing that they are in talks with OpenAI to potentially invest up to $50 billion in the company as a part of a $100 billion funding round that would put OpenAI’s valuation at $830 billion.
Other factors, such as increased M&A activity, including the proliferation of private equity acquisitions and other market consolidation will further restrain the job market.
Sector-level AI-driven job extinction has several hurdles to clear before becoming a reality
According to Tristan Harris, co-founder of the Centre for Human Technology and former Google design ethicist, Mass job extinction, where entire sectors are wiped out, could happen as soon as two years from now.
I have not done an exhaustive study of publicly available information on AI R&D at the “Magnificent 7”, aka Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla; however, listening to what several of their CEOs provides a mixed bag of insights with some saying the reckoning is upon us and others saying we need more time to develop the technology and its applications.
Nvidia CEO Jensen Huang at Davos likened the rise of AI to a five-layer cake with energy at the foundation, above which chips and computing infrastructure, cloud infrastructure, AI models, and AI applications sit. By AI application, he means getting businesses to develop, refine, deploy, and achieve scale of use cases across a broad range of sectors like manufacturing, distribution, healthcare, tech, and agriculture.
Tesla CEO Elon Musk, also at Davos, highlighted the “path to abundance for all” being contingent on achieving “ubiquitous” AGI and humanoid robotics, which, he claims, will be free or close to it.
Microsoft CEO Satya Nadella has asked the public to stop calling AI slop, elaborating that AI’s rise “will be a messy process of discovery, like all technology and product development always is.”
Meta CEO Mark Zuckerberg shared on a recent earnings call that, “2026 is going to be the year that AI starts to dramatically change the way that we work.”
In the end, there are several limiting factors that will slow what many foresee as an existential crisis (in order of likelihood and magnitude).
Access to energy will max out the power grid and slow the pace of bringing data centers online at the scale the above CEOs aspire to. Data centers will continue to push consumer utility costs higher, leading to increased local opposition. Magnificent 7 CEOs will seek to increase access to nuclear power, including pushing to fast-track approvals in regulatory-friendly states. Access to water needed to cool data centers will exempt much of the southwest U.S. from being viable locations in the next 5-10 years.
The technology is not ready for prime time. Research giant, Gartner, predicts, “Humanoid robots are unlikely to transform operations beyond pilot testing” in manufacturing environments.
Slow adoption both at the enterprise (B2B) and consumer market segments.
Lack of investor demand in capex bonds, as I previously mentioned, could limit debt issuances and increase the cost of debt.
Regulation by Congress is unlikely but necessary, with some CEOs, like Jamie Dimon, calling for regulatory action on AI’s impacts on job displacement.
Will the AI bubble pop, or will the bull market continue?
Predictions vary widely, with some forecasting a continued bull market, others agreeing but qualify by acknowledging it will be a “bumpy ride”, while others are concerned about whether AI capex investments will pay off, and some see the beginning of a bubble.
Here is my case for why there is, in fact, an AI bubble that is likely to cause a significant market correction. I’ve broken it down by what is and is not similar to the dot-com bubble.
What is different from the dot-com bubble.
There is a lack of diversification in the market with a small number of companies driving the prolific gains we have seen in recent years, namely the aforementioned “Magnificent Seven.” On a micro-level, a portfolio that is not diversified creates more risk. It’s the same thing at the macro-level. While I started writing this article in January, we are seeing in early February how profound an impact this group has on the broader market.
The balance sheets are incestuously intertwined with OpenAI, Microsoft, Nvidia, Oracle, etc’s, revenue being driven by one another.
The financing tools are suspect, with companies attempting to keep as much debt as possible off their balance sheets by getting private equity partners to shoulder the costs of data center construction and lease back the facilities so they appear as a rental vs. debt expense.
What is similar to the dot-com bubble.
Most revenues are negative or nominal. For example, OpenAI has not turned a profit in the past 10 years.
Lack of clarity on what some products actually do.
Setting aside big tech for a moment, there are simply too many indicators moving in the wrong direction. A “let the good times roll” mentality has overtaken events that historically have triggered market tailspins.
In the face of all the factors I’ve shared, analysts predict slower but positive market growth of about 4-5%. It’s a forecast that I struggle with. The only common trigger that is highly unlikely is a Fed rate increase, which would make access to capital more expensive. However, the rest of the inputs to a major market correction are currently present or clearly incubating:
Widespread earnings misses across sectors.
Rising unemployment. Discussed in detail in the first section.
Weak consumer spending. This is a key metric to watch and pay particular attention to the habits of the top 10% of U.S. wage earners who drive over 50% of consumer spending.
Credit tightening and stress in private credit markets. Beyond the Magnificent Seven, much of the access to capital that is supporting AI investment is in the near or subprime lending space. Additionally, the Administration’s proposal to cap credit card interest rates for consumers would be a positive for some, but would remove access to credit for others, including many small businesses, which would rapidly contract the economy.
Price-to-Earnings Ratios are stretched.
A small number of stocks are propping up the whole market.
Abrupt regulatory changes.
Geopolitical conflict.
Next up - What it means for us and what employees and employers can do.
Again, in Part Two, I will cover what it means for those of us in the workforce. Things that are top of mind include:
What employees and employers need to do immediately based on this forecast.
How is the quickening pace of innovation changing how we adapt professions and jobs?
What skills will be durable through innovation cycles/waves.
What employees and employers need to prepare for to manage through chronic, sustained uncertainty, and what is and isn’t our role in a healthy workplace.
The content in this article comprises my thoughts and opinions. They do not reflect those of any past, current, or future employer. Sources are hyperlinked throughout the article. No internal or external data from current or past employers was used to create this article.
Aaron Lawlor is a healthcare and health tech HR executive with extensive experience leading people strategy across complex publicly traded and non-profit organizations. He previously served three terms as the chief elected official of Illinois’ third-largest county. Aaron has a proven track record of building and scaling HR functions in startup, scale-up, transformation, and unionized environments across multiple sites, states, and countries.