The job market is frozen, and it may take some time for it to thaw, said Nicholas Bloom, the Stanford economist whose research explained why millions left their jobs during the Great Layoff.
His advice for those who are employed now? “Don’t leave,” Bloom said during a Harvard Kennedy School webinar titled “The Economic Consequences of War in Iran.”
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Employers, despite eye-catching exceptions, are firing at a historically low rate but are still reluctant to hire; At the same time, employees are “job clinging,” that is, leaving their positions at the lowest rate in years — a combination that is holding up the job market, Bloom told Fortune in an email.
Still, employees who are unhappy with their job for any reason, such as location or issues with their manager, should be even more cautious about leaving, Bloom added in the email.
“Those who want to change jobs should secure another before leaving their current one. You don’t want to leave a job to find that what seemed easy — getting another one — has turned out to be a huge struggle,” he wrote.
The prominent economist, who previously worked at both the McKinsey consultancy and the UK Treasury, said the war in Iran and its effects also play a role in the current frozen job market.
“This labor market slowdown is driven in large part by increased economic and policy uncertainty, with measures against trade, immigration and war making conditions unpredictable,” he wrote in an email to Fortune. “This uncertainty leads companies to slow down hiring.”
Bloom’s comments about the stuck job market contrast with his research during the Great Layoff, when job hopping became the norm as workers sought better benefits and higher wages while employers struggled to recruit talent.
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In November 2021 alone, a record 4.5 million people left their jobs, according to data from the Bureau of Labor Statistics.
While Bloom already predicted the rise of remote work before the pandemic, he noted in research conducted during the Great Layoff in 2022 that hybrid work policies could reduce company exit rates by 35%.
Allowing two days of work from home during a six-month test with more than 1,000 Trip.com employees increased worker satisfaction and internal communication rates while drastically reducing turnover, according to him and his co-authors.
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The game turned
Now, the scenario has reversed. Although recent data shows the economy is still growing, job openings fell to 7.1 million in November, according to the most recent Jolts report from the Bureau of Labor Statistics.
In February, employers cut 92,000 jobs, well above the 60,000 expected by economists, while the unemployment rate rose to 4.4% from 4.3% in January.
Artificial intelligence is intensifying this freeze, according to Bloom, especially as some companies have used the technology as a justification for pausing hiring.
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In early March, Federal Reserve Chairman Jerome Powell said job creation is “virtually at zero,” in part because of increased adoption of AI, which has led to layoffs and hiring pauses by companies.
Large employers, he said, talk less about expanding headcount. Instead, “most of the time they talk about AI and what it can do,” Powell told reporters during a briefing following the Fed’s rate decision earlier this month.
The war in Iran has only increased uncertainty for workers. A sustained increase in oil prices, as some analysts, including those at Goldman Sachs, predict, could increase inflation and directly affect companies across the country.
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In the context of instability in the oil market due to the war in Iran, the Federal Reserve opted in early March to keep interest rates stable, after having consistently reduced them since September.
The Atlanta Federal Reserve’s market probability tracker now shows the likelihood of a rate hike is greater than the likelihood of a rate cut in the next three months.
For workers already struggling to find new jobs in a frozen market, the prospect of higher credit costs, coupled with geopolitical uncertainty, could not have come at a worse time, as it directly affects companies that no longer want to run the risk of overhiring.
“Hiring someone is expensive, and if you later find out, for example, that demand is lower than you expected, it’s hard to reverse. So when there’s uncertainty, you pause,” Bloom told CNBC.
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