It’s (Still) the Business Cycle: Young Adult Workers in a “Low-Hire, Low-Fire” Labor Market

This is the first blog post in a three-part series that explores labor market challenges and opportunities for young adults.

Over the past two years, headlines about the U.S. labor market have often sounded contradictory. Employers report difficulty finding workers, layoffs remain low and unemployment rates are still near record-low levels. At the same time, young adults,We define young adults as 18- to 24-year-olds. especially those entering the labor market for the first time, are finding it harder to secure jobs. These patterns are not inconsistent. They are a hallmark of what economists increasingly describe as a “low-hire, low-fire” labor market.

In a low-hire, low-fire labor market, firms hold on to the workers they have (known as “worker hoarding”) and separations (people losing or leaving their jobs) stay low, but hiring slows as employers become more cautious. Businesses prioritize efficiency over expansion. The result is fewer new opportunities, less job-to-job switching and greater difficulty for new entrants to gain a foothold in the labor market. This type of labor market, which tends to emerge as hiring decelerates after periods of exceptionally tight labor conditions, is now clearly visible at both the national level and across the states of the Federal Reserve’s Eighth District.Headquartered in St. Louis, the Eighth Federal Reserve District covers all of Arkansas, most of Missouri, and parts of Illinois, Indiana, Kentucky, Mississippi and Tennessee. However, we observed similar results when we limited the samples to the following states: California, Colorado, Georgia, New York, Texas, Vermont and Washington, as well as Washington, D.C.

A Labor Market That Isn’t Firing but Isn’t Hiring Either

The first figure below illustrates a few defining features of today’s labor market. Since April 2023, the peak of labor tightness,Labor market tightness refers to the balance between labor demand and labor supply, and it is commonly measured by the job openings rate or the ratio of vacancies to unemployment. Greater tightness reflects stronger labor demand relative to available workers. job openings have declined steadily at the national level and across all Eighth District states. Hiring rates tell a similar story: Except for in Missouri, hiring has fallen in every Eighth District state, as well as nationally. Layoffs, however, have remained historically low, edging up only modestly in a few states, such as Indiana and Kentucky.

Together, these trends are consistent with low-hire, low-fire behavior. Firms are not shedding workers, but they also are not creating many new opportunities. This distinction is critical because it determines who absorbs the adjustment when the labor market softens.

Why Labor Market Weakness Hits Young Adults First

Workers who already have jobs are particularly insulated in a low-hire, low-fire economy. Young adults and new entrants to the labor market are not. Unlike prime-age workers,For this analysis, we define prime-age workers as 25- to 64-year-olds. young people typically rely on vacancy creation (i.e., new job openings) to enter employment. When hiring slows, they are the first to feel the effects.For more on this topic, see our December 2025 St. Louis Fed On the Economy post, “Young Adults and the Softening U.S. Labor Market: A Warning Sign?”

The next figure presents the cumulative change in the employment-to-population ratios for both younger and older workers, highlighting how uneven the recent slowdown in the labor market has been. The metric shows little change for the older group. This stands in great contrast to the pattern for the younger group, which shows the metric falling substantially since April 2023.

What about Recent College Graduates?

One group of workers that has received particular attention is recent college graduates. In strong labor markets, new-entrant college graduates usually see rising employment as firms compete for talent. Today, the environment is different. Since April 2023, the employment-to-population ratio of new-entrant college graduates has fallen 3.2 percentage points nationally and 7.7 percentage points in Eighth District states. At the same time, unemployment rates for new-entrant college graduates have increased, and labor force participation has edged lower, signaling both longer job searches and an increase in the number of new-entrant graduates leaving the labor force. Even for highly educated young workers, obtaining employment has become harder as firms scale back expansion and replacement of vacancies (e.g., due to retirement).

What This May Mean for the Broader Economy

Most young adults continue to engage with the labor market. Rising unemployment rates, rather than sharp drops in labor force participation, suggest continued job search rather than widespread withdrawal. Still, the pattern may raise concerns. Young workers often act as the labor market’s canary in the coal mine. When hiring slows, they are frequently the first group to experience deteriorating employment outcomes.

The key takeaway is that the business cycle remains the primary force shaping labor market outcomes, even when layoffs stay low. A labor market can appear strong on the surface while becoming much less hospitable to new entrants. If hiring remains subdued, young adults may continue to bear the brunt of the adjustment, and their experiences may signal that a broader softening of the economy is on the horizon.

Our next blog post will examine how shifts in labor supply and demand have helped shape these eroding employment outcomes for young adult workers.

Notes

1. We define young adults as 18- to 24-year-olds.
2. Headquartered in St. Louis, the Eighth Federal Reserve District covers all of Arkansas, most of Missouri, and parts of Illinois, Indiana, Kentucky, Mississippi and Tennessee. However, we observed similar results when we limited the samples to the following states: California, Colorado, Georgia, New York, Texas, Vermont and Washington, as well as Washington, D.C.
3. Labor market tightness refers to the balance between labor demand and labor supply, and it is commonly measured by the job openings rate or the ratio of vacancies to unemployment. Greater tightness reflects stronger labor demand relative to available workers.
4. For this analysis, we define prime-age workers as 25- to 64-year-olds.
5. For more on this topic, see our December 2025 St. Louis Fed On the Economy post, “Young Adults and the Softening U.S. Labor Market: A Warning Sign?”