The Frozen Labor Market: What Is It, and Why Should You Care?

August 11, 2025
By: Claudia St. John

At The Workplace Advisors, we often experience early indicators of shifts in the business and economic climate. Our vantage point — working closely with organizations across industries and geographies — gives us a unique perspective on the labor market’s ebbs and flows. In the past, we could reliably anticipate booms and busts: When the economy was poised for growth, clients would call us to ramp up hiring and prepare for expansion; when a downturn loomed, they would seek our help with layoffs or compensation adjustments. But the trend we’re witnessing now is unlike anything we’ve seen before, and it’s likely affecting your business, too.

From the Great Resignation to the Great Freeze

The COVID-19 pandemic unleashed a turbulent period in the labor market. In 2021, the U.S. experienced the “Great Resignation,” with more than 25% of the workforce — approximately 40 million people — quitting their jobs. Yes, you read that correctly: A quarter of the U.S. workforce quit their jobs in one single year. Businesses scrambled to fill roles and retain talent, driving up wages and, for a time, profitability. As the cycle continued, those wage hikes fueled increased consumer spending, which led to higher prices and, ultimately, inflation.

To combat inflation, the Federal Reserve raised interest rates, making it more expensive for businesses to borrow and invest. Traditionally, this would trigger a familiar cycle: companies would cut back on hiring, and layoffs would follow, pushing the economy toward recession. Yet, this time, something different happened.

A New Kind of Stalemate

While companies did slow their hiring and pulled back on investments, they stopped short of mass layoffs. The U.S. unemployment rate, which soared to double digits after the Great Recession of 2008-2009, has remained remarkably low, hovering around 4% since the onset of the pandemic. Even as profitability declined and borrowing costs rose in 2023 and 2024, layoffs have stayed at historic lows. Why? Because employers, scarred by the difficulty of hiring during the post-pandemic boom, are reluctant to let go of workers they may need again soon.

I have experienced this firsthand. During my keynote speeches to business leaders across sectors, I typically ask three questions:

• How many of you have struggled to fill key positions? Most hands go up.
• Have you had to increase pay to hire or keep employees? Again, most hands go up.
• Are you planning layoffs? Almost no hands go up. Like, no hands at all.

This pattern is consistent across industries. The reason is structural: The U.S. workforce is shrinking as baby boomers retire, and we’re not adding enough new workers to replace them. Immigration hasn’t filled the gap, and younger generations are smaller. The result is a labor market where openings persist but hiring and quitting have both slowed dramatically.

The ‘Frozen’ Labor Market Defined

What we’re seeing now is a “frozen” or “locked-in” labor market. Hiring has stalled, voluntary quits have plummeted and layoffs remain rare. Companies are holding onto their employees, even if business is slow, because the risk of not being able to rehire is too great. Meanwhile, workers are staying put, wary of making a move in an uncertain environment. This freeze is blocking the normal flow of opportunity: early-career workers can’t break in, experienced employees can’t move up and burned-out staff feel stuck.

Moreover, President Trump’s recent policy changes, including new tariffs and shifts in immigration enforcement, have only exacerbated uncertainty for businesses, causing many to take a “wait-and-see” approach rather than making bold moves. As a result, job postings linger for months without being filled, and interviews drag on with no clear end in sight. For job seekers, especially recent graduates, this means longer searches and fewer opportunities.

Why Should You Care?

This “frozen” labor market has far-reaching implications for business owners, managers and employees. For example:

• Talent shortages are here to stay. With workforce growth slowing and retirements accelerating, the competition for skilled workers is expected to remain fierce for the foreseeable future. If you lose a good employee, replacing them may be much harder than in the past.
• Hiring freezes can backfire. While pausing hiring may seem prudent, it can strain existing staff, increase burnout and erode morale. Employees may feel overworked and underappreciated, which can lead to disengagement or quiet quitting.
• Innovation and growth may suffer. When job mobility stalls, so does the circulation of new ideas and skills. This can slow innovation and make it harder for your business to adapt to changing markets.
• Job searches take longer. Those needing to hire are finding that the average job search has stretched to six months or more, with career changers proceeding with caution during a time of uncertainty.

What Should You Do?

If you’re a business leader, now is the time to rethink your talent strategy. Don’t assume the labor market will “thaw” soon or that old hiring patterns will return. We recommend the following:

1. Start thinking strategically about your workforce. Now is not the time to move from a proactive to a reactive approach to your long-term workforce strategy. Focus on retaining your best people, investing in their growth and creating a workplace culture that values flexibility, learning and well-being.
2. Don’t put off hiring talent. It will take longer than you anticipate to fill key positions. And once the market turns, you’ll face stiff competition and will have to pay more for the people you want to hire.
3. Consider broadening your recruitment efforts to include underrepresented groups, veterans or those seeking non-traditional work arrangements. Now is a great time to hire entry-level talent as a long-term investment. Train them how you want things to be done and let them grow within the company while giving them the freedom to “challenge” current practices, which can help companies consider new, more effective ways of doing things.
4. Embrace technology and automation to free up your team for higher-value work, but remember that people — skilled, motivated and engaged — are still your most valuable asset.

The “frozen” labor market isn’t just a passing phase; it’s a sign of deeper demographic and economic changes. By understanding what’s happening and responding strategically with creativity and flexibility, you can navigate this new reality and come out ahead. At The Workplace Advisors, we are here to help, from strategy development to execution and every step in between.