Labor Day is usually a pretty sleepy holiday. It marks the end of summer, the last vacation before the school year, a celebration of workers and their rights. It celebrates the advances that we’ve made as a society, going from working 10 hours a day 6 days a week before the invention of the automobile to our more modern 9 – 5. Or for many of you out there working hybrid schedules, something much more fluid than the 9 – 5. In any case, it’s a day to celebrate the advances we’ve made in productivity that have enabled decade after decade of compounding economic growth.
It’s also a good time to consider how the labor force is changing right before our eyes. AI, demographic bubbles, shifting perspectives on immigration, tariff threats, political efforts to reinvigorate our manufacturing base – the world of work is changing and so is the composition of our labor force.
How Does the Labor Market Look Right Now?
The short version of the next paragraph is “the labor force looks great”. But the long version is a little bit more nuanced. If you were to just take a snapshot of where we are right now, the labor force looks incredible. The unemployment rate currently sits just above 4 percent, and payroll growth looks steady, wage growth is ahead of inflation in a healthy way, and labor force participation is near multi decade highs. The snapshot looks really good on almost every metric.
Zooming out a little bit changes the story. While our current situation is great, the directionality of each trend is less encouraging. Jobs numbers have been revised down substantially. Labor force participation rates have eased off their highs by just a little bit. Unemployment is ticking up, though it’s ticking up off of an absurdly low base. Wage growth is positive, but the quits rate has declined and workers are seemingly less eager to leave their jobs in search of greener pastures. Furthermore, younger cohorts – fresh graduates in particular – are having a hard time entering the labor force as AI makes many entry level roles redundant. This is particularly true in white collar jobs – roles that have traditionally been reserved for college graduates and have long represented a simple path to a great lifestyle.
Meanwhile, many employers are indicating that they’re having a hard time finding workers to fill positions. Hands-on industries across different sectors are having a hard time filling roles, from hospitals to nursing homes to skilled trades like carpentry or welding. And at the same time, the same thing is happening at the top of the talent stack – big tech is fighting for top talent in AI and semiconductor applications, throwing out absurd pay packages and huge bonus checks to try to steal talent.
Reframing all that – our labor market is healthy, but it feels like it’s headed the wrong direction. Employee skill mismatches brought on by a rapidly shifting economic landscape are being exacerbated by AI and new federal policies.
Tariffs and the Geography of Labor
Policy is playing an outsized role in shaping how these trends evolve. On trade, the Trump administration has introduced new tariffs aimed at reducing reliance on Chinese imports and bolstering domestic production in strategic industries. These tariffs are having two differentiated impacts on the labor market. From a macro perspective, they’re designed to make manufacturing more attractive – you don’t have to pay tariffs if you manufacture here. But at a more granular level, the tariffs are disrupting many local businesses; complex supply chains are being rattled, and tariffs designed to incentivize manufacturing can have serious second order or third order ramifications. For example – a tariff on new vehicles is designed to make manufacturing vehicles in the United States more competitive. But putting extra tariffs on steel and aluminum, designed to protect vulnerable US industries, actually ends up causing manufacturing a car in the United States to be less affordable than manufacturing elsewhere because the price of domestic steel ends up rising so much. The end result; you have more expensive cars, no increase in domestic auto manufacturing, and the steel companies have a hard time increasing prices despite having tariff protection because the auto manufacturers are seeing sales volumes decline.
Meanwhile, for industries that do have significant subsidies, the labor force expertise may not align. A great example would be something like shipbuilding. As a nation, we have largely forgotten how to manufacture ships. This is a legitimate security concern, and also something that relatively developed nations can excel at – it’s high value add manufacturing. Bringing back shipbuilding is totally viable with the right support networks, subsidies, and incentives for capital allocation. It will also require significant training programs. Our labor force doesn’t have the welders or designers or other skilled trades necessary to build ships at scale in the United States. To make building ships here viable, we need to not only set up incentives, but also find ways to incentivize training and reskilling in the labor force.
Uncertainty Around Immigrant Labor
Just as tariffs and policy shape the demand for labor in specific industries, immigration and demographics determine the supply of labor across the economy. Of the two, demographics are the simpler data sets to understand; the United States has limited organic growth in its working-age population. Fertility rates are low and the Baby Boomer generation continues to retire. The large millennial demographic bubble is pushing into its prime spending years and supporting the economy, but the demographic cohorts behind them aren’t quite as large. Saying that another way, the American born labor force is going to need productivity tools like AI to keep up with the workloads coming their way.
Because demographic expansion has been tight, immigration has become the main driver of labor force expansion. This labor force expansion has been necessary to fuel economic growth. The surge of immigration in 2023 and 2024 provided the economy with an influx of workers that allowed job growth to continue without triggering a truly self sustaining inflationary wage spiral. Said another way, immigration actually helped shore up labor supply at a time when labor demand was high.
Today, that flow is in reverse. Current immigration policies are relatively restrictive – something that may actually help soften the blow of a cooling economy. A tighter labor force will give laborers more power in a recession than they would otherwise have. However, over the medium to long term, a tighter labor force will likely lead to wage inflation and may make it harder for companies to scale and grow.
The impact of reduced immigration is also uneven. Most foreign workers are employed in sectors that are traditionally lower paying or higher risk; sectors like agriculture, construction, hospitality, logistics, and health care support. These industries rely heavily on immigrant labor to meet staffing needs. A reduction in available workers could push wages higher in these fields if the domestic worker doesn’t want to step in to fill those roles at the current day rate.
As the cost of labor rises, companies will naturally look more aggressively at automation, efficiency, and technology-driven solutions to contain labor costs. Corporate executives are definitely already examining those options, but the decisions could become reactionary if the immigration impact is more severe than expected. This could accelerate adoption of robotics in warehousing, digital ordering in restaurants, or AI-driven scheduling and assistance in health care. Conversely, if immigration remains strong, the labor market may stay balanced, wage growth more moderate, and pressure to automate may be slightly less urgent in the near term.
Knowledge Workers vs. AI
Artificial intelligence is the wild card, and its relationship to Labor Day is both symbolic and practical. Just as past technological revolutions redefined work – from the mechanization of farming to the rise of industrial factories – AI is reshaping the task structure of modern employment. In the short run, AI is most effective at automating routine cognitive work. Customer service representatives, legal researchers, junior coders, and marketing assistants all face task substitution as AI systems handle first drafts, query responses, and repetitive analysis. Yet this does not mean wholesale job elimination. Instead, it alters how roles are defined and what human workers focus on.
In the medium term, companies that deploy AI effectively stand to gain significant productivity advantages. A software company embedding AI into its products can expand functionality and improve customer stickiness without a linear increase in labor. These dynamics support margin expansion and earnings growth. Workers who complement AI – those with the skills to manage, interpret, and build upon machine outputs – will see their wages and demand rise. Others may face pressure unless they reskill.
In the long run, AI will not eliminate work itself but will shift its composition. History shows that general-purpose technologies eventually create new industries and roles even as they disrupt old ones. The printing press, electricity, and the internet all followed this pattern. Investors should therefore think about AI less as a short-term headwind to employment and more as a structural reshaping of productivity and profit pools.
Investable Themes and Opportunities
Against this backdrop, several investable themes stand out. AI is obviously one of them. Microsoft, Nvidia, and AMD are positioned to capitalize on both the application and infrastructure layers of the AI stack. Microsoft is monetizing AI through its Office suite and Azure cloud platform, while Nvidia and AMD supply the chips powering the data-center buildout. That buildout itself is another theme: the electrification and infrastructure required to sustain AI adoption. Companies like Eaton, a leader in power management, stand to benefit from surging demand for data-center capacity, grid upgrades, and efficiency standards.
Health care technology also remains squarely in focus. Anything that can make a doctor more efficient and allow them to treat more patients is going to be an essential for patient bases across the country. Companies like Intuitive Surgical or Abbott Laboratories who are on the cutting edge of medicine will keep pushing those spaces forward. Meanwhile, Demographic tailwinds in the shape of an aging population ensure a growing patient base regardless of the economic cycle.
Finally, training and upskilling platforms represent an emerging opportunity as workers seek to adapt to shifting task requirements. As AI and automation alter job design, platforms that connect workers to new skills and employers to adaptable talent will become increasingly relevant.
Recalibrating How We See Labor Day
This Labor Day, the U.S. job market is best described as recalibrating. It is no longer in the emergency heat of the post-pandemic rebound, nor is it breaking down into widespread weakness. Instead, it is adapting to demographic realities and technological disruption. For workers, this environment means more uncertainty but also more avenues for opportunity. For investors, it means focusing on companies and sectors aligned with structural demand and supported by policy or demographic tailwinds.
Tariffs are nudging jobs into specific industries. Immigration flows are determining labor supply. AI is rewriting how work gets done. The lesson for portfolios is simple: stay adaptable, focus on long-term themes, and back businesses that can convert technological and policy change into real, durable cash flow. While Labor Day is about honoring work; we would be wise to also prepare for the future of work.