For the better part of two years, the American labor market has existed in an unusual state of suspended animation. Employers weren’t aggressively hiring, but they weren’t cutting workers loose either. Economists dubbed it the ‘low-hire, low-fire’ economy—a peculiar equilibrium that kept unemployment low on paper while masking a deepening anxiety among workers who felt increasingly trapped in their current roles. Now, as 2026 unfolds, there are growing signs that this equilibrium is fracturing, and not in the direction workers were hoping for.

According to a detailed analysis by CNBC, the ‘low-fire’ side of the equation is beginning to erode as layoff announcements accelerate across multiple sectors, while the ‘low-hire’ dynamic remains stubbornly entrenched. The result is a labor market that could be entering its most precarious phase since the post-pandemic recovery began—one where the safety net of job retention is fraying without any corresponding uptick in new opportunities to catch displaced workers.

A Frozen Market Begins to Crack in One Direction

The concept of a ‘low-hire, low-fire’ economy emerged in late 2023 and early 2024 as labor economists tried to make sense of contradictory signals. The unemployment rate hovered near historic lows, yet measures of labor market dynamism—quit rates, job openings, and hiring rates—were all declining. Workers weren’t losing their jobs, but they also weren’t finding new ones or voluntarily switching positions. The Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, commonly known as JOLTS, became the key barometer of this phenomenon. Hiring rates fell to levels not seen since the sluggish recovery following the 2008 financial crisis, even as layoff rates remained historically subdued.

This stasis was driven by several converging forces. Employers, scarred by the brutal labor shortages of 2021 and 2022, engaged in what economists call ‘labor hoarding’—holding onto workers even when demand softened, fearful that letting them go would leave the company short-staffed when conditions improved. At the same time, economic uncertainty—fueled by shifting trade policies, elevated interest rates, and geopolitical instability—made companies reluctant to commit to new headcount. The result was a labor market that appeared healthy on the surface but was quietly calcifying underneath.

The Layoff Side of the Ledger Starts to Swell

What’s changed in early 2026, as CNBC reports, is that the layoff restraint that characterized the previous two years is showing clear signs of weakening. Multiple industries are now announcing significant workforce reductions. The technology sector, which led the first wave of post-pandemic layoffs in 2022 and 2023, has resumed cutting. Federal government downsizing, driven by the Department of Government Efficiency’s ongoing restructuring efforts, has added tens of thousands of displaced workers to the rolls. And now, sectors that had been relatively insulated—including healthcare, financial services, and retail—are beginning to announce their own reductions.

The data supports the anecdotal evidence. Initial jobless claims, while still low by historical standards, have been trending upward in recent weeks. Challenger, Gray & Christmas, the outplacement firm that tracks announced layoffs, has reported elevated job cut announcements in the first quarter of 2026 compared to the same period a year earlier. Meanwhile, the insured unemployment rate—which measures the share of workers receiving unemployment benefits—has ticked higher, suggesting that displaced workers are having a harder time finding new positions quickly. This is the critical distinction: in a healthy labor market, layoffs are absorbed by robust hiring elsewhere. In the current environment, that absorption mechanism appears to be malfunctioning.

Why Hiring Remains Stubbornly Flat

The persistence of the ‘low-hire’ dynamic even as layoffs increase is perhaps the most troubling aspect of the current situation. Several structural and cyclical factors are conspiring to keep employers on the sidelines when it comes to adding new workers. First, the uncertainty surrounding trade policy continues to weigh heavily on corporate decision-making. Tariff regimes have shifted multiple times over the past year, making it extraordinarily difficult for companies to forecast costs and revenues with any precision. When executives cannot model their business outlook with confidence, headcount expansion is typically one of the first items removed from the budget.

Second, the rapid advancement and deployment of artificial intelligence tools has given many companies a credible alternative to hiring. Rather than replacing workers one-for-one with AI, companies are finding that they can handle growing workloads with existing staff augmented by new technology. This doesn’t necessarily mean mass technological unemployment is imminent, but it does mean that the marginal new hire faces a higher bar for justification than at any point in recent memory. A position that might have been filled with a new employee two years ago is now being handled by a combination of existing workers and AI-powered productivity tools.

The Human Cost of a One-Sided Thaw

Third, and perhaps most insidiously, the prolonged period of hiring restraint has created its own self-reinforcing dynamic. Companies that have operated lean for two years have, in many cases, restructured their workflows around smaller teams. Managers have adapted to doing more with less, and the institutional muscle memory of aggressive hiring has atrophied. Reopening requisitions, going through the recruitment process, onboarding new employees—all of these carry costs and friction that companies have learned to avoid. Breaking out of this pattern requires a strong positive signal, and in the current environment of uncertainty, that signal has not materialized.

For workers, the implications are deeply concerning. Those who still have jobs are experiencing what labor economists describe as a ‘locked-in’ effect—they’re reluctant to leave their current positions because they know the external job market is inhospitable, even if they’re dissatisfied with their pay, working conditions, or career trajectory. The quit rate, which surged to record highs during the Great Resignation of 2021-2022, has fallen to pre-pandemic levels and shows no signs of recovering. Workers are staying put not out of loyalty or satisfaction, but out of fear.

A Diverging Experience Across Industries and Demographics

Those who do lose their jobs in this environment face an increasingly difficult road. The average duration of unemployment has been creeping upward, and the share of job seekers who have been looking for work for 27 weeks or more—the official definition of long-term unemployment—has begun to rise. Networking, which has always been a critical component of job searching, becomes less effective when few companies are actively filling roles. The result is a growing cohort of experienced, capable workers who find themselves on the outside looking in at a labor market that simply isn’t creating enough openings to absorb them.

The pain is not evenly distributed. White-collar professionals, particularly those in middle management, have been disproportionately affected by the combination of AI-driven productivity gains and corporate restructuring. Federal workers displaced by government efficiency initiatives face the additional challenge of transitioning skills honed in public service to private-sector roles—a process that has historically been difficult even in strong hiring environments. Meanwhile, blue-collar and service-sector workers, while somewhat more insulated from the AI displacement effect, are contending with the downstream consequences of reduced consumer spending as white-collar layoffs ripple through the economy.

What Economists and Policymakers Are Watching Next

Economists are divided on where the labor market goes from here. The optimistic view holds that the current uptick in layoffs represents a necessary correction—a clearing out of positions that were artificially preserved during the labor hoarding phase—and that once this adjustment is complete, hiring will gradually resume as companies gain clarity on the economic outlook. Proponents of this view point to still-solid GDP growth, resilient consumer spending (at least among higher-income households), and the potential for interest rate cuts later in 2026 as catalysts for a hiring recovery.

The pessimistic view is considerably darker. If layoffs continue to accelerate while hiring remains flat, the unemployment rate—which has been remarkably stable—could begin to rise in a meaningful way. And labor market deterioration, once it begins, has a tendency to feed on itself. Rising unemployment dampens consumer spending, which reduces corporate revenues, which leads to further layoffs. This negative feedback loop is precisely what the Federal Reserve has been trying to avoid with its cautious approach to monetary policy, but the central bank’s tools are better suited to stimulating demand than to addressing the structural shifts—AI adoption, government downsizing, trade uncertainty—that are suppressing hiring.

The Fragile Balance That Defined an Era May Be Over

The labor market’s trajectory in the coming months will likely be determined by which of these narratives proves correct. Key indicators to watch include the monthly JOLTS data, which will show whether the hiring rate begins to recover; the weekly initial jobless claims figures, which will signal whether layoffs are accelerating or stabilizing; and corporate earnings calls, where executives’ commentary on headcount plans provides real-time insight into hiring intentions. The Federal Reserve’s next moves will also be critical—any signal that rate cuts are forthcoming could provide the confidence boost that employers need to resume hiring.

What is clear is that the comfortable equilibrium of the ‘low-hire, low-fire’ economy—uncomfortable as it was for workers seeking mobility—is no longer holding. The labor market is moving, but it is moving in only one direction. For millions of American workers, the question is no longer whether the freeze will break, but whether they will be caught on the wrong side when it does. The coming quarters will test whether the American economy’s remarkable resilience extends to its most important asset: the people who power it.