Washington's Gridlock Leaves Workers Waiting on Jobs

The average time Americans spend unemployed is the longest in nearly five years, even as the U.S. unemployment rate has stayed at or below 4.5% for a record-setting five years. October brought stronger-than-expected hiring, but job gains remain concentrated in relatively few industries and wages continue to fall further behind inflation. The midterm election results, described as a “blue tsunami,” won't change those conditions overnight.

The limits of the ballot box

“Elections can shift the policy outlook, but they rarely change the labor market overnight,” said Cory Stahle, senior economist at online job marketplace Indeed. The forces shaping hiring—including an aging workforce and artificial intelligence—were already in place before the election and will still be there next year, he said.

The labor force is shrinking as the population ages, Baby Boomers retire and net immigration falls. Policies to increase immigration or encourage people to have more children could address labor-supply constraints, Stahle said, but those changes take time. The election offers no quick escape from pressures that reach into workers’ lives and household finances.

Tyler Schipper, associate professor of economics at St. Thomas University in St. Paul, Minnesota, said household finances could see quicker effects from state action than from federal action. But states’ options still don’t promise fast relief: transportation networks and more affordable housing could help businesses and consumers, while investments in those areas take time to deliver returns, even if they begin in January.

Congress has limited power on its own, Schipper said, and President Donald Trump retains veto power. A divided federal government could mean gridlock and budget negotiations that risk shutdowns, leaving quick national-level gains uncertain. Gridlock could also limit major policy changes and provide some certainty—a narrow upside inside a system where decisions remain concentrated among elected officials.

“One of the drags on hiring has been uncertainty – uncertainty around tariffs, uncertainty around energy prices,” said Gus Faucher, chief economist at PNC Financial Services. “We might see lower levels of uncertainty, and overall, that's good news for the labor market.”

War, tariffs and the cost passed down

Manufacturing, which employs 12.7 million people, has added 101,000 jobs through October, with net gains for five months in a row. The industry had shed 113,000 jobs last year. Higher import costs from tariffs moved through supply chains to consumers, increasing inflationary pressure last year; as those effects began to fade early this year, U.S. and Israeli strikes on Iran started a months-long war and energy shock that pushed gas prices and inflation higher.

Goldman Sachs economists said Democrats were expected to use fiscal deadlines to seek limits on the war with Iran, roll back selected tariffs and reverse spending cuts enacted last year. Schipper said bipartisan support might persuade Trump to stop a trade war with a particular country, such as Canada. A War Powers Resolution on Iran might not have enough support to override a veto. Even if congressional pressure helps end the war, Schipper said, “The damage has been done,” and its lingering effects will take time to resolve.

Cuts and investment choices

Healthcare and social assistance have supplied the largest share of employment gains in recent years. That sector faces significant risks from major Medicaid eligibility and funding cuts scheduled to take effect Jan. 1, 2027, Diane Swonk, chief economist at KPMG, said. The cuts could leave state and local governments with a large funding gap, potentially bringing fewer programs and clinics, more consolidation, and job and service losses. “It's really hard on rural areas but also in lower-income areas as well,” Swonk said.

Companies have frequently cited AI in layoff plans in recent months, according to Challenger, Gray & Christmas data, though Faucher said those plans tend to overstate what is happening in the labor market. Goldman Sachs projections said federal restrictions on AI and data centers weren't likely immediately. States where Democrats were likely to further restrict data centers accounted for roughly 45% of planned U.S. capacity, with Texas alone accounting for roughly 25%. Economists expected the issue to fade because data centers ranked low among voters’ priorities, and any moratoria not to last long if enacted.

Schipper said election results could give communities a greater say over data-center projects and help economically distressed communities secure contracts with meaningful local effects. Joe Brusuelas, chief economist at RSM US, said slowing AI development could redirect capital toward non-tech investment and legitimate needs. But a prolonged correction in AI stocks could reduce household wealth and weigh on the broader economy. Consumer spending has been supported in part by strong stock-market wealth effects.

Schipper said consumers had been pessimistic about their circumstances and the future as war-driven gas-price increases and concern over AI’s labor-market effects worsened affordability concerns. People might feel more positive if they see more politicians working for them, he said, “even if it's not necessarily getting results.”