A shrinking labor pool means fewer available workers overall, making it harder for employers to hire the skills they need
The July jobs report showed the U.S. economy shed 23,000 jobs, and the gains reported for May and June turned out to be 103,000 lower than first announced, adding to pressure on CHROs already navigating a tight labor market. Jamie Kohn, Senior Director Analyst at Gartner in Arlington, Virginia, said what mattered most wasn't the number of jobs lost. It was what happened to the labor force itself.
"The thing that really caught my eye this time was the labor force participation rate being down while we also see unemployment going down," Kohn said. "So there are just fewer people to do the work right now."
Normally, a falling unemployment rate means more people found work. This time, it coincided with a drop in the labor force participation rate, meaning fewer people were looking for work at all. This points to a problem with supply rather than demand. The pool of available workers is shrinking, so even employers who want to hire have fewer candidates to choose from. HRD America has tracked this trend in coverage showing a labor supply problem years in the making.
Why hiring won't fix this
For years, hiring has served as the default lever for workforce change. When someone left a role, backfilling it gave companies a chance to bring in new skills without much extra effort.
"We have always relied on the ability to go out and hire whatever we need," Kohn said. "And that has been a really easy path for workforce transformation. Even if it's just somebody leaves their job and we're backfilling that role, just in backfilling roles, we can rethink what we need and start to bring in new skills. And we're just not going to be doing that as much."
Part of the problem is skills, not headcount. Kohn pointed to a mismatch between what organizations now need and what the available workforce can offer, driven less by artificial intelligence itself than by how work is being restructured around it.
"AI is part of it, but AI is still a minority of job postings," Kohn said. "I think it's something like 3% of jobs have AI skills listed. People need to be able to handle much more complex work than they have in the past, or to be able to oversee the output from an AI tool. And that is just not something that a lot of people have right now."
Return to office mandates, global expansion and shifting business models are compounding the problem, sometimes leaving talent in the wrong place entirely. HRD America has covered this shift toward a labor market walking on eggshells in earlier reporting.
Staying out of fear, not loyalty
Fear of layoffs is keeping people in place, even those who might otherwise be open to something new.
"Our data shows that especially highly skilled employees are saying that they would rather stay put than risk changing jobs," Kohn said. "Nobody wants to risk being last in, first out."
That caution shows up in the numbers too. The most recent JOLTS report from the Bureau of Labor Statistics found the quits rate frozen at its lowest sustained level since 2020. Gartner's Global Labor Market Survey tells a similar story from the inside. The firm's index of employees' intent to stay with their current employer has fallen from 100 in the first quarter of 2024 to 80 in the first quarter of 2026.
"People are not staying at their jobs because they're happy," Kohn said. "They're saying, 'I want to look for a job. This isn't a good time to do it.' And so where that lands you is with people who are maybe disengaged, not as productive. But also, it lands you with a workforce whose skills are rapidly becoming dated."
How to reengage the workforce you have
Rather than trying to overhaul the entire workforce, Kohn recommends CHROs focus first on a handful of skills tied directly to their most urgent strategic priorities, then work backward to find employees who already have those skills or could pick them up quickly.
"We can't do this everywhere all at once," Kohn said. "But if we start with the skills that are most critical to the strategic initiatives that we have, or most critical to the transformation that we're trying to do, then we identify a small group of skills and then take those critical skills and figure out who has the potential to learn and adapt."
That search often turns up capabilities companies didn't know they had, an issue HRD America has covered in reporting on how employers miss out on talent due to limited skills visibility.
"People may have hidden skills that you don't know they have right now because they have been trying to make themselves as marketable as possible for another job," Kohn said.
Some CHROs worry that reskilled employees will simply leave once the market loosens up again, a fear Kohn said traces back to memories of mass resignations a few years ago. In her experience, though, internal moves tend to have the opposite effect.
"For the most part, when people get a new opportunity internally, it really energizes them and it makes them want to stay," Kohn said. "If we can try to reengage those people who may be a little checked out right now, we have a good chance of retaining them long term."
