The Entry-Level Job Crisis

Falling consumer sentiment cuts spending because people who fear worse job prospects save more, and that reduced demand then lowers employment and wealth creation in a reinforcing negative cycle.

Many firms hoarded labor during the hiring boom to avoid future shortages, and because rehiring is costly and demand later became uncertain, companies preferred keeping extra staff or using temporary workers instead of mass layoffs.

At-will employment only delivers its upside when firing and hiring are both easy, so when hiring freezes while firing remains simple, workers lose mobility and the economy loses the re-matching and risk-taking that drive growth.

Students who enrolled in 2022 assumed jobs would be plentiful, so when the market reversed the Class of 2026 hit an unusually concentrated entry-level job crisis because their credentials and debts now outpaced available roles.

AI explains some entry-level automation, but it cannot account for the broader frozen labor market because overall layoffs and labor churn fell, meaning weak hiring reflects demand and uncertainty rather than automation alone.

The pandemic raised workers' reservation wages by reducing the urgency to accept low-paid or risky work—through stimulus, health risks, and life changes—which shifted bargaining power to employees and triggered mass quits when firms competed for scarce labor.

When economic and political uncertainty rises, firms freeze hiring because recruiting and training are large upfront bets with long payback periods, so companies avoid the risk of hiring for demand they cannot predict.