Trump’s Second Term Poised to Reshape the US Labor Market: A Looming Dislocation?
The US labor market, currently experiencing robust growth in healthcare and government sectors, faces potential upheaval with President-elect Donald Trump’s upcoming second term. While healthcare has seen substantial job growth in recent years, fueled by pandemic-related spending and demographic shifts, the incoming administration’s policies could significantly alter this trajectory. Simultaneously, the government sector, another area of recent growth, could also experience contractions under Trump’s proposed efficiency initiatives. This complex interplay of factors leaves the future of the American workforce uncertain, with potential implications for inflation and overall economic stability.
Key Takeaways:
- Healthcare Sector at Risk: The healthcare industry, a major job creator in recent years, faces potential disruption due to Trump's proposed immigration policies. Mass deportations could severely impact the workforce, given that immigrants constitute a significant portion of healthcare workers (nearly 18% in 2021). This could lead to labor shortages, driving up wages and potentially fueling inflation.
- Government Sector Contraction Possible: The government sector, the second-fastest growing sector in the past two years, could experience job losses under Trump’s new “Department of Government Efficiency.” This initiative aims to slash government spending, potentially resulting in significant workforce reductions at both the federal and state levels, impacting public services and the broader economy.
- Manufacturing and Mining Potential: Conversely, sectors like manufacturing and mining, which witnessed weak job creation in 2024, might see a boost under Trump's administration. Proposed tariffs could stimulate growth, but the extent of this impact remains uncertain.
- Wage Stagnation a Continuing Concern: Despite recent economic developments, the share of corporate income going to workers remains alarmingly low. Economists emphasize the critical need for substantial wage increases to stimulate economic growth and reduce inequality. This is essential to keep inflation in check while avoiding significant wage-price spirals
Healthcare: A Sector on the Brink?
For the past two years, the healthcare and social assistance sectors have been the unquestionable engine of job growth in the US, adding a staggering 902,000 jobs in 2024 alone. This follows a similarly impressive 966,000 jobs added in 2023. This surge is attributable to multiple factors, including the lingering effects of the Covid-19 pandemic and a growing aging population needing increasing care, according to Elise Gould, senior economist at the Economic Policy Institute. She states, “Healthcare and social insurance has been rising gangbusters for years now. Some of that is an aging population, some of it is just population growth.”
However, this robust growth is vulnerable. The incoming Trump administration's proposed immigration policies, particularly the potential for mass deportations, pose a significant threat. The Migration Policy Institute highlights the critical role immigrants play in the healthcare sector, accounting for nearly 18% of all healthcare workers in 2021. Gould warns, “There's already such high demand there and if we have mass deportations, that's certainly going to come at a cost for the services that can be provided in those sectors. You could then have shortages that could lead to more inflation because you're going to have employers trying to beat out each other to try to get the fewer workers that there might be, and that could cause problems in the macroeconomy.”
Government Sector: Facing the Axe?
The government sector has been the second-fastest growing sector over the past two years, but this growth appears equally precarious. Much of this growth occurred at the state level, outpacing growth at the local level. The federal government followed the national average. However, President-elect Trump's proposed "Department of Government Efficiency," a strictly advisory body led by Elon Musk and Vivek Ramaswamy, aims to aggressively cut government spending. This could lead to significant job cuts across all levels of government.
Gould expresses deep concern about the potential consequences: "If you get rid of that kind of a policy at the federal level, you're going to lose lots of highly productive workers, and so that could be a detriment to the services that they provide and obviously to the overall economy," she stated. "Unemployment can go up ... So many things can happen if you damage that vital federal workforce, and if there's less funding at the same local level that can be problematic as well.” The potential impact on essential public services and the overall economy from these drastic cuts is a major source of worry.
Manufacturing and Mining: A Potential Upturn?
In contrast to the potential job losses in healthcare and government, Trump’s policies might benefit manufacturing and mining, the sectors that showed the weakest job growth in 2024. These sectors could potentially benefit from Trump's proposed tariffs. While this could lead to job creation, the magnitude of such an effect is currently unpredictable. The economic effects of such policies are complex and involve a multifaceted interplay between international trade, domestic production, and consumer prices. These are far from simple "win-win" situations. Any gains in these areas would have to be considered in the context of potential job losses in other sectors.
The Looming Issue of Wage Stagnation
Beyond the sector-specific concerns, a broader economic issue remains. Despite productivity growth and reduced inflation, the share of corporate sector income going to workers remains extremely low. This highlights a crucial issue: the need for substantial wage increases. As Gould points out: "When workers have money in their pockets and they spend it on goods and services, that drives the production of goods and the provision of services. Even though we've seen productivity growth and we've had inflation come down, there is just a lot more room for wages to rise without putting upward pressure on inflation." Addressing wage stagnation is critical to fostering sustainable economic growth and reducing income inequality. The failure to prioritize this could lead to slower economic growth and societal instability, regardless of developments in specific sectors.
In conclusion, the US labor market stands at a crossroads. While the past two years have witnessed strong growth in some sectors, President-elect Trump's policies could trigger significant dislocations. The potential for job losses in healthcare and government, coupled with uncertainty regarding the impact on manufacturing and mining, paints a complex and uncertain picture for the future of American workers. Addressing concerns about wage stagnation will be crucial to ensuring overall economic stability and prosperity in the coming years.
