The State of the Shortage
The headline from the July employment report landed like a punch to the gut: nonfarm payrolls dropped by 23,000 — the first contraction the U.S. labor market has seen in years. But here’s the part that doesn’t add up on a quick read: there were still 7.4 million job openings in June, according to the latest JOLTS data. The economy didn’t suddenly run out of work. It ran out of workers. That’s the central tension defining America’s labor market in the late summer of 2026. Demand for labor remains elevated by historical standards — 7.4 million open positions is nearly two million above where JOLTS sat for the decade before the pandemic. But the supply side is creaking under three converging forces: an aging workforce, restricted immigration flows, and a participation rate that’s fallen off a cliff.By the Numbers
Let’s walk through the data, because the picture is more nuanced than a single negative payroll print suggests.- Job openings: 7.36 million in June, down from 7.54 million in May (revised down 57,000). The openings rate ticked down to 4.4% — still elevated, but softening.
- Hires: 5.3 million, unchanged from May. Employers are still onboarding at a steady clip — they’re just not accelerating.
- Quits: 3.2 million, unchanged. The quits rate held at 2.0%. Workers aren’t fleeing en masse, but they’re not locked in either.
- Layoffs: 1.8 million, steady at 1.1%. Employers are holding on to the workers they have.
- Unemployment rate: 4.1% in July, little changed. But temporary layoffs jumped by 153,000 to 921,000 — worth watching.
- Labor force participation: 61.4% in July, down 0.7 percentage points since January. Excluding the pandemic period, that’s within shouting distance of levels not seen since the mid-1970s.
- Wage growth: Average hourly earnings hit $37.62 in July, up 3.2% year-over-year. That’s real wage growth — and it’s a problem for the Fed.
Industry Spotlight: Healthcare Keeps Hiring, Construction Can’t Find Anyone
Not all sectors are created equal in this labor market.Healthcare: Still the Engine
Health care added 22,000 jobs in July, continuing an upward trend that’s averaged 36,000 per month over the past year. But the sector still has roughly 1.5 million job openings — far outpacing the number of qualified workers available. Ambulatory care (+18,000 in July) is pulling hard, and the demographics point in only one direction: an aging population needs more care, and the workers to provide it aren’t materializing fast enough. Indeed Hiring Lab’s research found that 39.2% of physicians in New Mexico are over age 60. Nursing has a credentialing bottleneck that keeps outsiders out even when demand is screaming. And home health aides — low-paid, high-demand — face the starkest supply gap of all.Construction and Manufacturing: Openings Rising
Construction job openings rose to 305,000 in June at a 3.5% openings rate — up from 291,000 in May. Manufacturing had 481,000 openings at a 3.7% rate, with durable goods manufacturing particularly tight (345,000 openings at 4.2%). The National Association of Manufacturers has been warning for years that the sector faces a cumulative shortfall that could reach 1.5 to 2 million unfilled positions as retirements accelerate and fewer young workers enter the trades.Retail and Government: The Losers in July
Retail trade shed 19,000 jobs in July, with warehouse clubs and supercenters leading the decline (-21,000). Local government education dropped 50,000 — a seasonal swing, but still ugly. Financial activities continued a year-long slide, down another 14,000 in July and now 121,000 below its May 2025 peak.What’s Driving the Shortage
Three structural forces are at work, and none of them reverse quickly.- Demographics: The baby boomer retirement wave isn’t a headline anymore — it’s the water we’re all swimming in. The BLS’s own 10-year projections, written before the current immigration restrictions, already pointed to declining participation. The workforce is getting older, period.
- Immigration: Foreign-born workers have a participation rate of 66.3%, versus 61.6% for native-born workers. Among men, the gap is even wider — 76.9% to 65.8%. Restricted immigration flows don’t just shrink the labor pool at the margins; they remove workers who are younger and more likely to be employed than the native-born average. Indeed’s Laura Ullrich told Fortune that when the BLS updates its projections, “they’ll be even more severe declines” because of immigration policy.
- Skills mismatch: 91% of employers expect hiring obstacles in 2026. 36% of companies have open positions they can’t fill, with skills cited as the primary barrier. The World Economic Forum projects a 40% skills gap by 2027. You can’t train a registered nurse or a machinist in a weekend.
That’s not a pundit’s hot take — it’s Laura Ullrich, former Richmond Fed economist, summarizing the research.There simply aren’t enough workers left to fill the jobs employers have.