Last week’s economic data delivered new evidence that employment has slowed in 2025. But there’s more to the job market than the pace of hiring.
Pay growth, hours worked, and productivity are combining to make the jobs picture more complex than the sum of its parts. Here is a look at how these three components operate in the background of the labor market and how they can shift the economic landscape.
Pay growth is making inflation a moving target
Pay growth has stabilized at higher rates than we saw before the pandemic. ADP’s Pay Insights data showed that pay for job-stayers rose 4.4 percent year over year in August. For job-changers, it was up 7.1 percent.
Yet while pay is rising faster than it used to, the pay premium for switching jobs—the difference in pay growth for job-stayers and job-changers—has shrunk. The return for switching jobs was about 2.6 percent in August and has been below 3 percent for the past two years.
Workers have less financial incentive to quit their jobs and employers are hiring less, so pay growth has stabilized, albeit at rates higher than we saw a few years ago.
This stable but elevated growth in pay has two implications. Faster wage growth might make it more difficult for the economy to return to and sustain the very low levels of inflation consumers enjoyed in the decades leading up to the pandemic. And structural changes in the labor market are likely to make services inflation, which is more human-capital intensive, sticky.
People are staying put but working less
Workers might be less likely to leave their current employer, but they also are putting in fewer hours. In August, the average worker put in 34.5 hours a week for the second straight month, ADP payroll data shows. Since 2020, when the typical worker put in 36 hours a week, average hours worked has been edging down.
Another driver of this change is the growth in people working part time. In August 2019, part-time workers made up 36 percent of the labor market. This August, 42 percent.
With people working fewer hours and some shifting from full- to part-time employment, even solid wage growth might not be enough to make up for the reduction in hours worked.
Productivity, the economy’s hero—or villain
Fewer hours and higher wages could make the difference when it comes to productivity, an elixir for almost all the economy’s woes. Using fewer inputs to generate goods and services is, by definition, disinflationary. Improved productivity also accelerates economic growth, boosts corporate profitability, and lifts worker wages.
From 1947 to 2025, productivity growth averaged 2.1 percent a year. In the first quarter of 2025, the pace of productivity growth slowed to 1.8 percent, then rebounded to 2.4 percent in the second quarter. Still, over the last five years, productivity gains have trailed historical averages.
If that second-quarter momentum continues, productivity could be a kingmaker for the U.S. economy. If it doesn’t, the result could be higher labor costs and slower growth in outputs, which could weaken the economy.
My take
Behind the big picture of our slowing job market is an economy whose whole is greater than the sum of its parts.
Overall, the economy is performing well, primarily because consumer spending is holding up. Consumers have been able to muscle through higher prices because they’re being supported by a labor market where supply, for the most part, matches demand.
Yet, though hiring is front and center, it isn’t the whole story. Other labor market indicators are combining to paint a fuzzier picture, making it more difficult to discern whether the job market is at a natural equilibrium or, because of factors lurking in its background, is poised to weaken further.
The week ahead
Tuesday: The Bureau of Labor Statistics will release benchmark revisions to its employment data for the 12 months ending in March 2025.
Wednesday: Prices paid by producers jumped 0.9 percent from June to July, the largest monthly move in three years. I’ll be watching today’s release of the BLS Producer Price Index to see whether the August rate decelerates meaningfully, making July a one-off pop in wholesale prices, or whether it remains high, signaling faster price growth.
Also on Wednesday, Tim Decker, lead architect of the ADP National Employment Report, describes how he adjusts our monthly release for bias in the data.
Thursday: In contrast to producer prices, consumer price growth slowed in July compared to June, with increases in the BLS Consumer Price Index attributable mainly to the cost of shelter. Economists will be watching whether a spillover in the price of intermediate goods faced by producers will show up in the price of goods paid by consumers.
Friday: We end the week with the economy’s most important component, the consumer. How consumers feel about inflation, jobs and housing can affect how they behave, including how they spend. The University of Michigan Index of Consumer Sentiment was down more than 14 percent in July from a year earlier. That could signal a coming pullback in spending or, as has been the case for the last two years, consumers might continue to spend despite a feel-bad attitude toward prices.
