Why is unemployment very low but there are major layoffs now?

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The Current Situation

The overall U.S. unemployment rate stands at 4.3% as of August 2025 USAFacts, which is still considered relatively low by historical standards. Yet over 177,000 tech workers have been laid off across hundreds of companies in 2025 NerdWalletTrueUp, with Amazon recently cutting around 14,000 positions Crunchbase News.

Why This Is Happening

1. Tech is a small slice of the overall economy

Tech layoffs are an outlier in an otherwise strong job market NerdWallet. While tech gets a lot of headlines, these workers represent a relatively small percentage of the total U.S. workforce. Other sectors like healthcare, hospitality, and construction continue hiring, which keeps the overall unemployment rate low.

2. Pandemic overcorrection

Tech companies went on a hiring spree during the pandemic to meet surging consumer demand as people turned to the Internet for work, shopping, and socializing, enabled by low interest rates that made capital cheap NerdWallet. Now they're correcting for that overhiring.

3. AI-driven restructuring

Companies are increasingly using AI to handle tasks in customer service, data analysis, and content generation, reducing the need for humans in those roles Leetcode Wizard. This is allowing companies to operate with leaner workforces even while maintaining or growing revenue.

4. Companies can be selective

When unemployment is low overall but certain sectors are cutting jobs, companies in those sectors actually have access to a larger pool of experienced talent than usual. Big Tech layoffs present a unique opportunity to recruit a caliber of talent that would've previously been impossible NerdWallet to hire.

The Hidden Story

The 4.3% headline number also masks some concerning trends: more than 1.9 million Americans have been unemployed for at least 27 weeks, nearly double the number seen in early 2023 Eye on Housing, and the unemployment rate for new college graduates in early 2025 was 5.3%, higher than the overall 4% rate for all workers Federal Reserve Bank of Minneapolis.

So while the overall job market appears healthy, specific sectors—particularly tech, consulting, and certain corporate roles—are experiencing a significant contraction that the headline unemployment rate doesn't fully capture.

An excerpt of what appeared in the Wall St Journal this morning.

Corporate America has ended its firing freeze.

Companies scrambled for years after the pandemic to build back their workforces, learning a simple lesson along the way: Keep the workers you’ve got, because if you lose them you will have a hard time getting them back.

The job market has softened in recent months, however, marking a safer environment for companies to start streamlining their workforces. A host of them have pounced, including Amazon.com, United Parcel Service, Target and Meta Platforms, which have announced tens of thousands of layoffs in recent weeks.

It is a shift that could have major repercussions for U.S. workers. Over the past two years, America’s businesses have become increasingly reluctant to bring new employees on, especially as more recent uncertainty over the direction of tariffs made it harder to plan ahead. But they have also been hesitant to cut the employees they already have, an example of what economists term “labor hoarding.”

The result has been a low-hire, low-fire environment, in which recent graduates and others trying to break into the job market have struggled, but workers who are already employed have been largely insulated.

Now things are looking a bit more like the 1990s, when many big companies were focused on eliminating workers they felt were no longer needed, according to Joseph Brusuelas, chief economist at RSM.

Back then, “We used to reward companies for letting people go,” he said

A number of things could be at play in companies’ increasing comfort with layoffs, including optimism over artificial intelligence, but they all come down to the bottom line. Labor is a major cost, and cutting it is one way to bolster profit margins. Tariffs could be adding to the urgency, especially for companies weighing whether and how to pass through the higher costs they are paying for goods on to consumers.

Some companies also added to their payrolls as they moved to keep up with the surge in demand that came in the pandemic’s wake, and might now feel that they are bloated. Amazon had about 800,000 employees at the end of 2019, and about 1.5 million at the end of last year.

In a recent memo to staff explaining Target’s plan to cut 1,800 corporate roles, its incoming chief executive, Michael Fiddelke, said, “Too many layers and overlapping work have slowed decisions, making it harder to bring ideas to life.”

It probably helps, too, that investors have appeared to welcome job cuts. Target’s stock edged up on the day it announced layoffs. When Amazon on Tuesday said it was laying off 14,000 workers, with more to come, its stock rose 1%. When UPS disclosed that it had cut 48,000 management and operations positions when it reported earnings Tuesday, Wall Street’s focus was on its strong results, and its stock rallied 8%.

Nor are companies any longer in an environment where hiring back workers would be anything like the struggle it was after the economy began to reopen from the Covid crisis. Then, workers could largely pick and choose between competing offers.

The unemployment rate, which fell to a multidecade low of 3.4% in April 2023, was 4.3% as of August. Many Americans are operating under the assumption that the jobs picture will get worse: 64% of consumers polled by the University of Michigan in October said they expected higher unemployment over the next 12 months, compared with 32% in October 2024.