How the Job Market Is Shaping Up for 2026

Dan Loney: 2025 has felt like a bit of a year of the unknown, especially in and around the labor market. You obviously have the impact of AI that we're feeling already, as well as how the global economy is playing a role. As we continue our faculty prediction series, we review the past year and look ahead to what we will see in the labor market. A pleasure to discuss this with Matthew Bidwell, professor of management here at the Wharton School. Matthew, happy holidays to you, sir.

Matthew Bidwell: And to you. Thank you very much for having me here.

Loney: I use the word “unknown.” That's my view from looking at it from the outside. How do you view what we've seen in 2025, in and around the labor markets?

Bidwell: Every year's a change, which is nice. We had this crazy, great resignation. It cooled off substantially. And then this year, I think we've been talking a little bit about a frozen labor market. Unemployment is pretty good. There's not a lot to worry about there at the moment. But the rate of people changing jobs has been very low. Layoffs, depending on what indicator you look at, still fairly low. I mean, I think the Challenger & Gray layoff announcements has really spiked. But when you look at other sources of data, again, it doesn't look like a lot of people are losing their jobs. But they're not taking jobs either. So it's been kind of this “wait and see” almost, on everybody's behalf.

Loney: Right. That’s exactly what I was going to say. Because it feels like a lot of companies are wanting to take more time before they make a commitment to some of these jobs that they have open, because they don't know which way the economy is going to go right now because of tariffs. And we've got global issues that are out there right now. So there's a lot of questions that CEOs have at the moment.

Bidwell: I think so. Business uncertainty is not good for hiring. We saw, earlier this year, measures of business uncertainty spiked at almost unheard of levels around what's going on with public policy and so on. You mentioned AI. I do wonder as well how much uncertainty over AI is playing in. I feel like in AI, you have this big gap between where we are and where people predict we will go. Everybody's telling you all the time, “Look, you can get AI to do everything.” We try. And it's really good at a few things, but slightly disappointing a lot of things today. It's completely plausible that soon it's going to be much better. But given that, I would understand as an executive, I'm also thinking, “Maybe I'm not going to need people to do this in a couple of years time. Do I want to hold off, wait, and see what's happening with AI as well?”

Dan Loney: A comment that really stood out to me was from Sen. Mark Warner of Virginia, saying that college grad unemployment, which has ticked higher in recent years, could hit 25% in the next five years. Look, it's a politician saying it. So my question is, do you really take that with a grain of salt, or is there some teeth there?

Bidwell: I mean, anything could happen, right? If you look at some countries, there are countries where college graduate unemployment is seriously high. We are not one of them. There is truth. It has ticked up. It depends how you measure it. I think he was looking at a measure of graduate unemployment among under-24s, which tends to be a lot higher. And that hit 9%. But it often goes quite high and then comes down again. That was mid-summer, when people haven't yet found their jobs. That tends to be high, and then it plummets again. So, I think those numbers are a bit of a scare.

But it is true, the number that the Fed uses, which is unemployment among 22 to 27 year olds, that has edged up for college graduates to around 5%. Not terrifying numbers. But what I think has been particularly surprising to people has been, relative to overall unemployment, and particularly relative to unemployment of high school grads, it has gone up. So, there is a sense that there is something changing in the labor market there.

Loney: One of the other areas that I wanted to ask you about was in-office work. It still feels like we have the component of hybrid work as an important element in the labor force. Some companies in the last few years have made the move to recall all of their employees five days a week. Where do you think we stand with that? And more importantly, where do you think we're headed with it?

Bidwell: Gosh, I hate it when people ask me for predictions. My best guess is we could see the portion of work being done from home tick down a little bit in the near term. I think it might go up again in the long term. The reason I think it might tick down in the near term is just — I think with hybrid work, particularly, it's been a tug of war between employees and employers. I think there is a sense among a lot of employers, “I want you where I can see you.” And employees value the flexibility. I think the power dynamic in the labor market has swung a lot towards employers. For a few years, they were really terrified. “If we make everybody come in five days a week, they leave and we can't replace them.” Now, they figure people aren't going to leave. So, it could move. It hasn't moved very much this year. It's probably ticked down a very small amount. But still, about 25% of days are being worked from home.

Loney: How important is that component of being in the office, working with your co-workers and having that connection, to the overall success of a company?

Bidwell: Not very. I mean, on the margin, it might be helpful. But on the margin, being able to hire better people cheaper because you give them flexibility can also be helpful. It's very hard to look at the data and say, “Wow, companies have to have people in-person in order to be successful.”

Loney: If you're talking to a college grad this coming spring for 2026, what's your advice to them about the labor market right now?

Bidwell: It's not as good as it has been recently, so be thoughtful. Be prepared. Apply broadly. Think through your options. There are jobs there. I mean, the unemployment rate is still quite low. People are getting jobs. Maybe not exactly the job they would have got a few years ago. It's probably going to take a little bit more work. and it may not be a one-stage thing. get that first job and then think about what's the thing you really want to do afterwards.

Loney: I have one of my kids in college, she's going to have her first internship this summer. How valuable is the college internship, the business internship, in the process of getting that first job right now?

Bidwell: I have a kid in exactly the same role. I think it's helpful. I think some companies use it a lot to screen people. But there are a lot of people without internships who are getting jobs as well. I think probably there are a few fields, investment banking being the classic, where it's come to be absolutely central to recruiting. But I think more broadly, I'm not sure it's yet absolutely necessary.

Loney: How are you feeling about the labor market as we head into 2026?

Bidwell: Anything could happen. I think you could definitely tell a story where things are going to pick up. The economy hasn't slid as much as we would expect. It's reasonably robust. If companies have been waiting to see, eventually, some of them might decide, “OK, let's just do it.” But there are also a bunch of headwinds. I think we're in this kind of teetering state where it could go either way.