• More US companies are dropping education and experience requirements for jobs, according to Indeed.
• This could help some Americans find work, but it could also help companies pay their workers less.
• As hiring slows, dropping hiring requirements could help businesses land some workers at a discount. 

More US companies are dropping experience and education requirements from their job postings. For some firms, it could be their latest strategy to save money on labor costs.

As of April, the most recent data available, 30% of US job postings on Indeed included a desired level of work experience — down from about 40% in 2022. As of January, 48% of Indeed postings included an education requirement, down from about 52% in 2019.

In recent years, many employers have struggled to find workers and therefore considered a wider talent pool. Some companies began prioritizing skills-based hiring — rather than evaluating workers based largely on their education and experience — in the hopes of finding talented candidates they might have overlooked in the past. This shift could increase competition for some jobs, and applicants with a college degree, for example, might have less of an edge than they once did. But advocates for this new hiring approach say giving more people a chance at landing more jobs is a positive development overall.

However, companies aren't simply dropping requirements out of the goodness of their hearts. As some businesses look to cut labor costs amid economic uncertainty, ditching hiring requirements could be an effective way for some companies to get workers at a discount, Cory Stahle, an economist at Indeed, told Business Insider via email.

Take a job posting that requires two years of work experience, Stahle said. Two years ago, when job openings were at record highs, the typical worker with about four years of experience might have had little interest in this job. There was a decent chance they could find another role that better fit their experience level and paid more as a result.

But things have changed. While the unemployment rate is low compared to past decades, slowing hiring across the country has made it more difficult for some Americans to find work. As of March, hiring on LinkedIn was down compared to the prior year in each of the 20 industries measured, including financial services, tech, and healthcare.

In this new hiring landscape, Stahle said a job seeker with four years of work experience might be willing to accept a more junior role — even if it means taking a pay cut. But if the job posting lists two years of experience as the requirement, a more experienced job seeker might think the employer is focused on more junior candidates and be less likely to apply, Stahle said. Dropping an experience requirement could convince this type of candidate to submit an application.

"It's possible that workers with more experience may be more willing to accept a position requiring less experience — potentially, perhaps especially, if the actual desired or required level of experience is not specified," Stahle said. "Removing these requirements may allow employers to attract a higher number of high-quality candidates, including those with more years of relevant work experience under their belt, to jobs that may pay at a more junior level."

Dropping hiring requirements could save some companies money

There's some evidence that companies could already be dropping hiring requirements in part to cut costs. Using Indeed data, Stahle analyzed the industries that had the largest declines in experience and education requirements in Indeed job postings between April 2023 and 2024. He found that the industries with the largest declines in hiring requirements also saw "rapidly cooling demand" for workers over this period.

Stahle said companies in industries that have slowed hiring might be particularly motivated to cut labor costs — and well-positioned to do so.

"With fewer opportunities available and more competition, job seekers might be willing to take a lower paying position — even if just temporarily," he said.

The banking and finance industry, which has seen layoffs and a hiring slowdown in recent years, was among the industries with the largest declines in education and experience requirements. The marketing and IT sectors also have experienced hiring slowdowns and large declines in hiring requirements, per Indeed data.

Additionally, when a company drops education and experience requirements, workers with more experience or education aren't the only ones who might be more likely to apply. This could also attract capable applicants with less experience and education — and whose salary demands could be more modest, Stahle said.

It's not clear how much of an impact the decline in hiring requirements has had on employer's labor costs. But it's one example of the way a shift in labor market power away from workers and toward employers can impact workers' pay.

Compared to two years ago, many workers have less power to switch jobs and ask for a raise — and people who need work have fewer options. These developments are among the reasons wage growth has fallen over the past two years.

To be sure, not all companies that have dropped job posting requirements have made significant changes to their hiring practices. But Stahle thinks the decline in requirements could reflect a real shift in how many companies will approach hiring in the years to come.

Though he doesn't expect the broader shift away from education and experience requirements to reverse anytime soon, Stahle said some companies could modify their hiring strategies if the economic environment changes.

"It's possible that employers are shifting their hiring preferences — perhaps temporarily — toward less experienced but also very likely less costly hires," he said.

Are you struggling to find a job? Are you willing to share your story? If so, reach out to this reporter at jzinkula@businessinsider.com.

• Taiwan's chip boom is expected to drive a surge in the number of millionaires on the island, according to UBS.
• The island's semiconductor sector, led by TSMC, is bolstering its economy and exports.
• However, inequality in Taiwan has widened as the growth in tech industries is more robust than in other sectors.

Taiwan's status as the world's chip hub has kept the island's economy resilient.

The industry is so hot that Taiwan is expected to mint many new US-dollar millionaires in the next five years, according to Swiss bank UBS' annual wealth report, released on Wednesday.

Taiwan was home to nearly 790,000 US dollar millionaires last year. This number could surge by 47% to about 1.16 million millionaires by 2028, UBS predicts, leading the 56 global markets the bank analyzed in its report.

That said, the size of Taiwan's millionaire population pales when compared to the US.

The US was home to nearly 22 million millionaires last year, per UBS. That number is expected to grow 16% to 25.5 million millionaires over the next five years.

UBS attributes Taiwan's wealth growth to its semiconductor chip industry, which is "set to reap the rewards of the boom in artificial intelligence."

Taiwan is home to Taiwan Semiconductor Manufacturing Company, or TSMC, the world's largest contract chipmaker and the sole supplier of key advanced chips to Apple and Nvidia, among others.

Chip rush boosts wealth but widens inequality

Even though UBS expects a huge jump in the number of millionaires in Taiwan, much of the island's 23 million population is not likely to benefit from the AI craze.

UBS' data shows wealth inequality widened by about 10% in Taiwan from 2008 to 2023.

The median net worth in Taiwan stood at $110,521 per adult in 2023, according to UBS. The average net worth was nearly three times that amount at $302,551.

This means people at the top of the scale got a lot richer than those further down the totem pole over that time period, skewing average wealth upward.

Official data from Taiwan confirms the trend, showing that the wealth gap between the top 20% and bottom 20% of households has widened fourfold over three decades.

Taiwan's Gini coefficient, which measures inequality, also widened from 1991 to 2021, when the last two official wealth surveys were conducted.

Taiwan's tech sector growth is outpacing the non-tech sector

One key trend contributing to wealth inequality in Taiwan is that its tech industry is doing better than industries not related to tech.

TSMC's performance has soared on the back of the AI rush, with its second-quarter sales growing 40% over a year ago — beating analyst expectations. On Monday, TSMC ADRs listed on the New York Stock Exchange briefly crossed the $1 trillion valuation mark.

It's not just TSMC. The rise of the chip behemoth has created an entire tech ecosystem in Taiwan, much of which is centered on hardware.

This ecosystem has been driving Taiwan's economy even amid longstanding geopolitical uncertainty as China claims the island as its territory. The country's GDP grew 6.5% in the first quarter of the year from a year ago. This was boosted by exports of machinery and electrical equipment, which surged nearly 28% from a year ago. However, domestic demand growth was modest, growing just 1% over the same period.

Ma Tieying, a senior economist at Singapore's DBS bank, wrote in a note on Wednesday that she expects the world's AI drive to continue fuelling demand for high-performance chips from Taiwan.

However, recovery in non-tech traditional manufacturing is expected to continue to be a drag due to the economic slowdown in China, which accounts for about one-third of Taiwan's total exports, Ma added.

• Families with young kids continue to flee major US cities, despite urban recovery post-pandemic.
• The population of children under five in New York City fell 18% from April 2020 to July 2023.
• Big urban counties have lost young kids at almost double the national rate, a new report found.

When the pandemic hit, young families fled cities across the US in droves. They moved to suburbs, exurbs, and rural areas in search of a more affordable, convenient life, driven in large part by housing costs.

As major US cities have rebounded from pandemic lockdowns, that trend has slowed, but families with young kids are still fleeing, a new report from the Economic Innovation Group found.

The report found that the population of children under five years old in New York City fell 18% between April 2020 and July 2023, while the number of young children fell by 15% in Chicago's Cook County, 15% in San Francisco, and 14% in Los Angeles County in that same period.

On average, large urban counties had a 3.9% in the number of kids under five between 2020 and 2021, 2.2% between 2021 and 2022, and 1.5% between 2022 and 2023.

Big cities like New York have begun growing again since the pandemic, but those population gains are primarily due to a rise in immigrant residents and declining death rates, according to the report, which is based on US Census data published this month. Overall, domestic out-migration from big cities is still double the rate it was pre-pandemic.

"This stuck out as a big surprise to me," EIG policy analyst Connor O'Brien, who authored the report, told Business Insider. "This data is three years out from the start of the pandemic, cities have started to recover robustly on a bunch of different measures." But, he added, "Young families are just not coming back."

This comes amid a general aging of the US population. The US birthrate is falling, and the population of young children nationwide has dropped 4.6% since the pandemic, the EIG report noted. The population of young kids fell in two-thirds of the nation's counties since April 2020. In 2023 alone, the number of young kids fell in 58% of all counties.

But large urban counties have lost young kids at almost double the national average rate. Birth rates in big cities have also fallen at about double the rate of rural birth rates over the last ten years, EIG found.

All of this is pretty bad news for big cities, many of which are still struggling to fend off the so-called "urban doom loop" in downtowns emptied of workers and facing shrinking tax bases.

"Parents are opting out of living in big cities or deciding to still live there but have no kids," O'Brien said. "I think that sends a pretty depressing message about the growth prospects of those cities going forward because at the end of the day, people vote with their feet."

EIG's analysis echoes other recent reports. Families with kids under six years old are more than twice as likely to leave New York City than families without young kids, the Fiscal Policy Institute found. Families with kids six or older moved out of the city at the same rates as childless families, suggesting that the costs "uniquely associated with young children — childcare and the need for more space" are pushing families to leave, FPI, a left-leaning think tank, argued.

O'Brien blames the exodus on a slew of factors, ranging from the popularity of remote and hybrid work to the surprisingly strong recent economic recovery of many exurban and rural areas.

The result? Some exurbs — particularly in the pro-development Sunbelt — are seeing young families flood in. Exurban counties like Polk County, Florida, which sits between Orlando and Tampa, and Montgomery County, Texas, which is outside Houston, are booming.

As Business Insider has previously reported, millennials aren't just leaving the urban core — they're moving to the farthest reaches of the suburbs. This phenomenon is perhaps a predictable result of the back-to-the-city movement they led over the last two decades. That surge in demand for housing and amenities has made many urban cores some of the most expensive places to live in the country.

For years, rising housing costs in cities have pushed even the most devoted young city dwellers to move to the exurbs and suburbs, where housing has generally been more abundant and affordable. And the pandemic only deepened that trend.

Have you moved your family out of a major US city? Reach out to this reporter at erelman@businessinsider.com to share your story.

• Steven and Lauren Keys retired at 29 by saving over 60% of their income and investing early.
• With a net worth of $1.1 million, they visited every state and national park.
• Their favorite is Death Valley, while they weren't as fond of Hot Springs or Gateway Arch.

Steven and Lauren Keys, now 33 and 34, retired at 29 and have visited every state and national park — managing to grow their wealth while doing so.

Though neither earned more than $90,000 a year while they were working full-time, they saved over 60% of their income, began investing early, and avoided unnecessary purchases, allowing them to travel for much of the year while returning with more money than they started with. On one three-month trip, they returned with $26,000 more despite working just part-time by keeping costs low, getting freebies, and achieving large investment gains.

"We never spend down our savings when on vacation, and we usually get richer in the process," Steven said.

They've explored much of the country, deciding their favorite national parks are in California and Alaska — while their least favorite are in the Midwest.

Achieving financial independence

Steven and Lauren are part of the FIRE community — financial independence, retire early — consisting of people who saved and invested enough to be secure financially and not rely on income from work.

They went to high school together outside Tampa and then attended the University of Florida. Lauren put herself through college thanks to scholarships, grants, and various jobs. Steven had some assistance from his parents and received a tuition scholarship. Both graduated debt-free.

The summer after graduating, they did a road trip across the US, driving from Florida to Alaska with a stop in New York. They slept in their car for much of the 45-day trip and didn't spend much on food.

After a stint in California, they moved back to Florida, where Steven got a full-ride scholarship for a master's program in science education. Lauren found a job at a small financial company, and both were making about $40,000 a year. Due to tight budgeting, they saved more than 60% of their income. In two years with both of them working five-figure jobs, they saved over $100,000.

After growing fatigued with full-time employment, they married and took a six-month sabbatical to Hawaii, where they lived frugally. They rented an apartment for six months instead of staying at hotels, bought a cheap car and sold it for more than they paid for it, and did some part-time work. Despite barely working, they returned with over $1,000 more in net worth than they started from part-time work, low-cost purchases, and investments.

They bought their first home — a $71,000 condo in Gainesville — in cash, then job-hopped for a few years until both made about $90,000 a year. By 2019, they were worth about $600,000, and they felt it was time to embark on a seven-month road trip hitting every US national park. Due to their investments and part-time work on the road, the trip cost them nothing on net.

"The best way to save money on any trip is to attack your biggest costs, which are going to be lodging and transportation," Steven said. "Anywhere that you're willing to drive to instead of flying, particularly if there are multiple people, that's going to save you a massive amount of money in terms of airline costs. Another thing is getting away with camping, whether in your vehicle or in a tent or campground or anything like that."

Lauren retired in 2020 while Steven worked full-time for six months before moving to a part-time arrangement. They moved to a condo by the ocean on Florida's east coast and continued to grow their investments in low-cost index funds, real-estate holdings, and retirement accounts. Steven has continued freelancing through tutoring while Lauren does part-time social media work.

It's allowed them to take various one- to three-month vacations over the last four years. Last year, they went on a three-month trip to Australia, after which they came back $26,000 richer. They kept expenses to below $18,000 plus $3,000 in expenses in the US, and they made about $19,000 in freelance income and $28,000 in investment gains. They bought a cheap car on Facebook Marketplace in Australia, which they sold for slightly more than they paid for it, earned free loyalty nights at hotels, cooked many of their meals, and found free museums and concerts.

Their net worth is $1.1 million, and they're gearing up for a road trip to eastern Canada. They calculated their sweet spot is spending at most $26,000 a year to feel fulfilled without breaking the bank, though they don't track their expenses or budget.

Favorite — and least favorite — national parks

Steven and Lauren ranked their favorite and least favorite national parks from their travels on factors such as how much the park took their breath away, how many fun things the park had, and how easy it was to find quiet in the park.

"Nothing's worse than showing up somewhere beautiful, and you can't get a picture of it without a crowd in the way," Lauren said. "We've been to Yosemite a couple of times, and there are areas where you're sitting in traffic literally in a national park for an extra 45 minutes."

Death Valley was their favorite, citing the vast sand dunes of Eureka Valley, the salt flats of Badwater Basin, and the colorful rocks of Artist's Palette. Despite the crowds, Yosemite ranked second overall, as they noted the waterfalls and granite cliffs are superb.

Hawai'i Volcanoes was their third favorite, as they lived nearby for six months and explored the park's intricacies. They ranked Hawaii's Haleakalā, the highest point on Maui, in ninth.

Other parks topping the list include Yellowstone, American Samoa, Carlsbad Caverns, and Canyonlands.

About 41% of the total cost of attending all national parks came from traveling to Alaska, Hawaii, and other American territories. Still, four of their top 10 parks are outside the contiguous US.

They said one of the easiest — and cheapest — places to camp is Alaska, which they've driven to three times.

"You don't really have to pay anything because you can pretty much pull off wherever you want," Steven said. "Nobody stares if you camp or sleep in your vehicle."

Their least favorite national park was Hot Springs in Arkansas, which was the first national park they visited. They felt it didn't live up to the status of "national park," which they also felt about the Gateway Arch in St. Louis. They also weren't thrilled by Voyageurs in Minnesota, which didn't have many activities other than inexpensive boat tours; Guadalupe Mountains in Texas, which had fantastic views but difficult-to-access sites; and Lassen Volcanic in California, which they found peaceful but smelled like "an ugly pot of bubbling sulfur water."

Best and worst states

The Keys' top four favorite states are California, Alaska, Hawaii, and Utah.

"In terms of just natural beauty and uniqueness, California has so much diversity," Steven said. "Northern and Southern California are two completely different places with two completely different awesome experiences."

Though everyone goes to Oahu, the Big Island in Hawai'i is "super underrated," Lauren said, due to the scenery and relative calm.

Their home base of Florida didn't make the top of their top states list, as they viewed the state's three national parks as less interesting above-ground than many others, though they're great for scuba or snorkeling.

Their least favorite states included Kansas, Missouri, South Carolina, and New Jersey. They found Kansas rather monotonous with plenty of cornfields, and they thought St. Louis and Kansas City were very congested but didn't have the same charm as other large cities.

They felt North Dakota, South Dakota, Idaho, and Montana are underrated, as each has some of their favorite national parks, affordable accommodations, and cities with a calmer, suburban feel. Still, they found Mount Rushmore overrated, as they expected it to be larger.

Have you visited every — or most — state or national park? Are you part of the FIRE movement or living by some of its principles? Reach out to this reporter at nsheidlower@businessinsider.com.

• Matt Krueger quit his job at 29 to go full-time into real estate investing and Airbnb management.
• The Iowa native and his wife have been buying and renovating houses as they lived in them since 2015.
• Kruger said breaking into the short-term rental market was key to growing their rental income. 

This as-told-to essay is based on a transcribed conversation with Matt Krueger, 30, about building income from rental properties in Des Moines, Iowa. Business Insider has verified his ownership of the properties with documentation. The following has been edited for length and clarity.

After getting married in 2014, my wife and I moved into an apartment together. We were renting but wanted to buy a house.

We weren't earning much. I was a cellphone rep on an hourly wage, making around $35,000 in 2014, and she was a veterinary technician who made $24,000 that year.

My in-laws inspired us in our real estate journey. My father-in-law worked as a meat cutter in a grocery store but was able to quit his job at 45 after becoming a real estate investor.

I was listening to a podcast and discovered house hacking: fixing up a property as you live in it so you can rent it out to tenants. We used this method several times and generated income from long-term rental properties.

In 2021, I decided to enter the short-term rental business, listing properties on Airbnb. It hugely increased our revenue from property investment and enabled me to quit my day job in 2022.

I feel blessed to have increased my earnings to the point where I could become a stay-at-home dad at 29.

We started our real-estate investment journey with long-term rentals

In 2015, we bought our first home in Des Moines, Iowa, for $92,000. At the time, we lived off my salary and saved all my wife's income, which we used for a 3% down payment minus $1,000 "first-time home buyers credit," around $3,700.

The house was a dive, but we started fixing it up. We couldn't afford to hire contractors, so my father-in-law helped us, and we used YouTube to learn how to renovate. We would do one project, save up my wife's income, and then start the next project, working on the house bit by bit. We spent around $5,000 on renovations.

It was like living in a construction zone, but we loved it. Painting and flooring the house connected us as a married couple. We made an ugly house into something we could call a home.

After 15 months, we moved out and straight into a second house, which we bought for $130,000 in 2016. We paid the $4,700 down payment with savings from my wife's salary.

We rented out our first property for $1,200 a month, and after paying the mortgage and expenses, we made $515 in net income monthly.

We continued to house hack fixer-upper properties using conventional loans. Because they were primary residences, we only had to put down 3% deposits and would slowly renovate the houses until they were ready to be rented. That year, we had our first kid and my wife stopped working.

In 2017, we sold our first property, which we purchased for $92,000, for $145,000, and bought another house for $130,000.

In 2018, we bought our fourth property for $195,000, which we live in now. It was a dump, but we liked that it came with land, so we decided to fix it up and stay put there.

To ensure we were renovating competently, I'd have my father-in-law and my father, who's done some woodworking, check through things. I also asked questions in Facebook groups, but overall, I felt it was relatively easy to learn basic plumbing and electrical stuff. At points, we did hire some professional help, like an electrician and someone to help us move a wall.

It took us about a year to renovate and move out of each of our first few properties and for them to become cash-flowing. We'd work on renovations in the evenings and weekends together.

Between 2017 and 2021, our rental income averaged $1,200 to $1,500 monthly, taking into account money set aside for mortgage payments.

I was inspired to try short-term rentals and quit my day job in 2022

One day, I listened to a podcast about short-term rentals and Airbnb. It seemed different from what I knew about long-term rentals, but I was enticed by the crazy numbers they were earning.

I wasn't sure if it would be possible in Des Moines — the online data suggested it was a bad market for Airbnb — but I wanted to try.

We could take out a $150,000 home equity line of credit, or HELOC, on our primary home, which we'd been renovating for two years. In late 2021, we used it to buy a $160,000 family home as an Airbnb rental.

We used money from our HELOC to invest around $30,000 in renovations and furnishings. We tried to target families by adding amenities like a game room and getting professional photos taken. When we listed the house on Airbnb, the bookings rolled in pretty quickly. We made around $52,000 in revenue from that house in 2022.

I decided I wanted to go all in on real estate in 2022. I'd moved jobs a few times within the cellular sales field and was on a $68,000 salary, but I was making more from properties, so I called my boss and quit. I was 29 at the time.

In 2022, we bought and flipped a condo in Texas using money from our HELOC. We also bought a second short-term rental in 2022 using our HELOC to pay for the deposit, furnishings, and renovations. We sold the condo for nearly $100,000 profit and used that income to repay the line of credit.

Then, we used the HELOC again for the down payment on a fourplex and duplex in 2022.

At the end of 2023, we did a cash-out refinance on our second Airbnb property, which paid back half of our HELOC. Then, at the beginning of 2024, we sold our duplex to pay off the rest of the HELOC.

Lastly, in April 2024, we drew $80,000 of our HELOC for the down payment, renovations, and furnishings on our third and most recent Airbnb. We plan to do a cash-out refinance in a year to pay back any remaining balance on our HELOC, but we are also using the cash flow from the newest Airbnb to pay it back.

Taking out a line of credit on your primary home can be risky, but we always ensure we pay back the credit as quickly as possible. We have the cash flow, and in the worst-case scenario, we could sell one of our properties to make the payments.

One downside of short-term rentals is the increased admin

In 2023, we made around $97,000 in revenue from long-term rentals and around $143,000 from two short-term rentals. In May this year, we opened our third short-term rental, hoping to increase our revenue even further.

We've been successful with short-term rentals because we've focused on creating an experience for guests. We invested in hot tubs, barbecues, outdoor games, and arcade rooms. Last year, we hit around 70% occupancy.

Compared to long-term rentals, I do have to put more effort into maintenance. I wanted the income to be passive so I could spend as much time with my family as possible, but initially, we did the cleaning ourselves.

I now have a cleaner who goes in after each guest's visit. I've also started using software to automate certain processes. PriceLabs helps me update prices based on demand, and Hospitable automates some messaging with guests and notifies our cleaner about bookings that are happening. It's hugely reduced the amount of admin I need to do.

We set aside money from our revenue for maintenance and paying cleaners. We also cover all utilities and monthly restockables like shampoo and toilet paper.

I hope that real estate investment will support my family for the foreseeable future

I wanted real estate to give me financial freedom. Now that I've quit my job, I can provide more time and energy to my children. During the day, my wife does most of the homeschooling while I take care of the rental business and manage my social media accounts.

I also wanted to build generational wealth. I plan to leave the properties to my kids, and they can decide what to do with them.

We knew there was a chance this might not work, that we could lose money or not find a tenant, but by buying homes that needed cosmetic updates, we've built sweat equity into them, giving us a safety net from debt.

If something went wrong, I could sell all the properties and be left with a good chunk of change even after mortgage payments. If the market crashed and property values dropped, that doesn't necessarily mean rents will decrease. I think we'd still be able to land on our feet again.

I think it's riskier to rely on an employer to keep your paycheck coming than to bet on yourself. From making $35,000 a year at my day job to seeing over $258,000 in revenue in 2023, I'm making way more than I ever expected.

For the first three years of the pandemic recovery, the labor market was one of the bright spots that helped drive America's world-leading economic boom. But increasingly, there are signs that the job market is losing some steam. Whether it's hard data like the unemployment rate or sentiment-based surveys of businesses, it's clear that the labor market has cooled off.

This cooling off should be a cause for concern because unemployment tends to be inertial — like a rock rolling down a hill, once it starts to move, it tends to keep moving in that direction. And unless someone steps out in front of the rock to slow it down, the recent deterioration raises the possibility of a further increase in unemployment. It's clear that the Federal Reserve should be the force to slow down the sliding job market.

What the Fed does next will greatly affect the chances of avoiding a larger increase in unemployment. It spent the past few years raising interest rates in an attempt to slow rapidly increasing prices, but with inflation largely tamed, the risks have now shifted toward the labor market. Waiting too long to lower interest rates to support the economy will only increase the odds of the job market breaking down.

In short: The Fed needs to hurry up and cut.

The job market is at an inflection point

The emergence of the US from the worst of the pandemic shutdowns in early 2020 helped usher in a historic boom for the labor market. From April 2020 to April 2023, the economy added 25 million jobs — an average of 674,000 newly employed people a month. Unemployment hit a 54-year low of 3.4% in April 2023, and hiring rates exploded. The historic strength of the labor market led to big gains for average workers: Wages for lower-end service occupations in the retail and hospitality sectors saw the most rapid growth.

Over the past year, that story has changed. In the first six months of 2024, the unemployment rate climbed 0.4 percentage points to 4.1% — an increase of 0.7 percentage points from its historic low. While that may seem like a small adjustment, that translates to 1.1 million more unemployed Americans than there were in April 2023 and roughly 550,000 more people out of a job this year alone. Importantly, the unemployment rate has reverted to where it was before the upheaval of the pandemic: At 4.1%, the jobless rate is where it was in early 2018.

The rise in unemployment has coincided with plenty of other evidence that times are tougher for people looking for work: Job openings, a proxy for businesses' labor demand, have declined. Even those who are employed are more nervous about their prospects. After hitting a high of 3.3% from late 2021 to early 2022, the rate at which people are quitting their jobs in the private sector is lower today than it was at the onset of the pandemic.

These warning signs in the job market are compounded by weakening data across the economy. Real GDP grew in the first quarter at an annualized rate of 1.2%, and the Atlanta Fed's GDPNow model estimates the second quarter will come in at 1.5%. This would bring the average for the first half of the year to a relatively sluggish 1.4%, below the Fed's estimates for longer-run potential.

There are also two big signs that the second half may not improve. First, after a strong run for residential investment in recent quarters, the outlook for residential construction has weakened as building permits have declined. Any slowdown in residential investment is likely to drag on GDP growth. Second, consumption is slowing after ending 2023 at a strong pace. The level of retail sales and food services has been essentially flat for the past five months as people have started to cut back on their spending.

The dimmer outlook for growth is important because even though real GDP advanced 3.1% last year, the unemployment rate still rose 0.2 percentage points to 3.7%. Ultimately, employment follows economic growth. If 3% growth could not keep unemployment from climbing in 2023, why would the unemployment rate remain stable in 2024 if growth comes in substantially lower?

As the economy slows, the outlook for the job market worsens. Once things start moving down one path, they tend to speed up and can be hard to reverse. In other words, it's rare to see the unemployment rate go up only "a little bit." One way to visualize this is the Beveridge curve, which plots the relationship between job vacancies and unemployment.

As the above chart shows, when unemployment is low, job vacancies can drop a fair amount without a corresponding increase in joblessness. But as unemployment creeps up, things get more intense, and the disappearance of job vacancies accelerates. In the aftermath of the pandemic, it was thought that given the strength of the labor market, job openings could decline without sparking much of an increase in unemployment. But after three years of a slow and steady adjustment, our current spot on the curve means that any further deterioration in job openings risks a somewhat larger increase in unemployment.

Even a small increase in the unemployment rate from here would produce real consequences. The Fed needs to balance employment against inflation. If unemployment is climbing, even if for benign reasons like an increase in labor supply, it implies that there are more people competing for a given level of jobs. Thus, the more people out of work looking for jobs, the more those seeking employment can suppress the wages of those presently working. This slows inflation and implies less of a need to run a less restrictive monetary policy.

There is a way to avoid this

Whether the increase in unemployment is big or small, the best way to avoid putting more people out of work is for the Federal Reserve to step in. The Fed's job comes down to two joined goals: maximizing the number of people who are employed while keeping inflation under control. Over the past three years, the inflation piece of this equation has taken precedence — the interest-rate hikes were the necessary cost of slowing down prices. But as inflation has cooled off, the balance of risks has tilted toward the unemployment side of its mandate. Waiting too long to start cutting interest rates risks exacerbating the weakness of the labor market. It's a much better idea for the Fed to start recalibrating policy now, before more aggressive action would be needed.

Given the state of the economy, there's a strong case for starting these rate cuts ASAP. The 4.1% unemployment rate is already above the central bank's consensus projection for the end of the year, meaning that the job market is deteriorating at an even faster pace than it anticipated. At the same time, there are signs that inflation — the economic dragon that the Fed was trying to slay with its rate hikes — has been tamed. The core personal consumption expenditures price index, the Fed's preferred measure of inflation, is running at roughly 2.5% compared with the same time last year. There are also signs that inflation will continue to cool, such as the continuing strength of the US dollar, which will help curb prices for imported consumer goods.

When times are uncertain, as the Fed claims, it's useful to refer back to policy rules of thumb to help guide actions moving forward. One such rule is the Taylor rule, a fairly rudimentary formula that suggests where interest rates should be based on just the unemployment rate and core inflation. Given the current economic data, the rule suggests that the Fed should have interest rates at 4.5% to 4.75%, which implies three or four 0.25% rate cuts.