The labor market heading into 2026 looks radically different from the tight, employee-favoring conditions that defined 2021-2023. Unemployment is projected to peak at 4.5% in early 2026, with job openings declining and the quits rate sitting below pre-pandemic levels. This means shift workers have less confidence finding new roles, while managers finally have more applicants per position.
But that doesn't make 2026 easier for multi-location operators. Employee engagement just hit a 10-year low of 31%, with 17% of workers actively disengaged. The restaurant industry faces a shrinking labor pool as the #1 concern, cited by 54% of operators surveyed. Healthcare could see a shortage of nearly 700,000 physicians, registered nurses, and licensed practical nurses by 2037, with over half of current workers considering quitting.
The combination of disengaged employees, persistent labor shortages in key industries, expanding Fair Workweek regulations, and wage growth pressures creates a complicated operating environment. Understanding what's actually changing helps managers prepare rather than react.
Wage growth stays above historical norms while hiring slows
Despite rising unemployment, wage growth accelerated in the second half of 2025 and remains a full percentage point higher than pre-pandemic rates. This creates an unusual dynamic where operators face ongoing pressure to raise wages even as the labor market loosens.
U.S. employers are forecasting 3.5% average salary increases for 2026, slightly less than the 3.6% actual increases provided in 2025. This tapering reflects the softening job market, but compensation consultants recommend a strategic approach: give hourly employees a greater portion of the salary budget compared to executives and managers.
Why? Companies still experiencing worker shortages, concerned about unionization, or forecasting recruiting challenges from immigration policy changes should allocate surplus budget dollars to hourly positions. One compensation advisor suggests a 3.5% overall budget could translate to executives getting 2%, managers and professionals getting 2.5%, and hourly employees receiving 4%.
The pressure compounds in states with at least 20 minimum wage increases taking effect January 1, 2026. Even more increases are expected as inflation and living costs continue outpacing stagnant wages in many markets. Rents in metro areas climbed 49% from October 2017 to October 2024, significantly outpacing wage growth in most regions.
For multi-location operators, this means budgeting for wage increases even during periods of higher unemployment. Markets with acute housing cost pressures will require above-average raises to retain workers who can't afford basic living expenses.
Turnover remains expensive despite a cooling labor market
A cooler job market doesn't automatically solve retention problems. Gallup research shows that high employee engagement reduces turnover by 51%, but only 23% of employees globally report being engaged in their work. The cost of replacing employees ranges from one-half to two times their annual salary when factoring in recruiting, training, and lost productivity.
The restaurant and hospitality sector recovered to pre-pandemic employment levels in late 2024, but 59% of restaurant operators still report positions that are hard to fill, down from 70% in 2023. Hotels show similar patterns, with 65% reporting ongoing labor shortages even after raising wages and offering additional perks.
The reasons employees leave haven't changed. Career advancement opportunities drive 31.5% of job changes, while 20.2% cite lack of job fit and 16.5% point to management or work environment issues. Flexibility and scheduling account for 7.7% of departures. For younger workers specifically, workplace culture matters significantly more than it did for previous generations. 39% of Millennials and Gen Z say workplace culture is a factor in staying at a job, compared to just 22% of Baby Boomers.
Operators who assume a slowing economy will automatically reduce turnover are missing the engagement crisis. Disengaged employees who stay because they fear the job market still deliver poor performance, create negative environments that drive away top talent, and generate hidden costs through reduced productivity and increased errors.
Fair Workweek laws expand to more jurisdictions
Predictive scheduling regulations continue spreading beyond their original cities. Los Angeles County's Fair Workweek Ordinance took effect July 1, 2025, requiring retail employers with 300+ employees worldwide to provide 14 days advance notice before work schedules begin. Berkeley's Fair Workweek Ordinance became operational January 12, 2024, covering employers with 10+ employees in the city across building services, healthcare, hotels, manufacturing, retail, and warehouse services.
These laws impose specific requirements that multi-location operators must track each jurisdiction separately. Most mandate posting schedules 14 days in advance, though some cities require only 7-10 days. Penalty structures vary widely. Changes made within the advance notice period trigger "predictability pay" ranging from one hour of wages to complex tiered systems based on how far in advance the change occurs.
The compliance burden is substantial. New York City recently fined restaurants $5 million for violating scheduling restrictions, and the city council has proposed additional legislation that could suspend, revoke, deny, or refuse to renew food service establishment licenses for violations.
What makes Fair Workweek compliance particularly challenging is the recordkeeping requirement. Operators must maintain proof they distributed schedules on time, including dated photographs of posted schedules and confirmation that each employee received their personal schedule. The burden of providing proof always falls on the employer, meaning operators are assumed guilty if they can't produce sufficient documentation.
For 2026, multi-location operators should expect more jurisdictions to adopt these laws and enforcement agencies to scrutinize compliance more closely. Companies operating across multiple cities face a compliance puzzle where each location may have different advance notice requirements, different penalty structures, and different documentation standards.
Restaurant, retail, and healthcare face distinct pressures
While labor challenges affect all industries, the specific problems vary by sector in ways that demand different solutions.
Restaurant operators heading into 2026 identify labor efficiency, training, and scheduling as the top areas where AI could provide relief, cited by 40% of surveyed franchise leaders. This reflects the reality that demand forecasting remains unpredictable, customer traffic fluctuates based on weather and local events, and managers spend excessive time creating schedules manually.
Despite persistent staffing challenges, 82% of restaurant operators expect improved or stabilized growth in 2026, with 60% confident their business will achieve positive traffic. The optimism suggests operators are adapting to operate with leaner teams, using technology to improve efficiency, and accepting that pre-pandemic staffing levels may not return.
Retail faces similar adaptation patterns. Some hotel operators permanently streamlined operations after pandemic-era service reductions like less frequent housekeeping and limited breakfast options. Combined with new technology-driven efficiencies, these changes mean lower employment levels may reflect lasting operational shifts rather than just ongoing shortages.
Healthcare confronts a more severe crisis. Nearly 90% of employers surveyed by SHRM struggled to fill open positions during summer 2025, and 73% saw a decrease in applications for hard-to-fill positions. Unlike restaurants and retail where service reductions are possible, healthcare can't simply operate with fewer staff without compromising patient safety.
The difference in industry pressures means one-size-fits-all workforce strategies fail. Restaurant managers need scheduling tools that accommodate demand volatility. Retail operators benefit from cross-training employees to handle multiple roles during peak periods. Healthcare requires investment in retention initiatives because recruiting replacement staff has become nearly impossible in many markets.
Employee expectations around flexibility intensify
The appetite for flexible work arrangements continues growing, yet regulatory environments are making flexibility structurally more expensive. This creates tension between what employees want and what operators can afford to provide.
Workers increasingly seek varied contractual formats including platform work, project-based engagement, and portfolio careers. Younger workers particularly embrace multiple income streams rather than traditional single-employer arrangements. But policymakers struggle to manage tax revenues and social security payments through frameworks designed for open-ended employment contracts, leading to regulations that increase compliance costs for flexible arrangements.
For shift workers, flexibility means different things than for office workers. It's not about working from home but about having input into which shifts they work, getting advance notice of schedules, and having the ability to swap shifts without manager approval for every change. Pay transparency requirements continue expanding, with more states and localities introducing or strengthening rules that require employers to show employees exactly how their pay is calculated and what factors influence their earnings.
Technology expectations also rise. Employees want mobile access to schedules, the ability to request time off digitally, and real-time visibility into available shifts they can claim. Companies that still rely on posted paper schedules or require employees to call managers for schedule information increasingly struggle to attract younger workers.
The flexibility paradox for 2026 is that operators face pressure to provide more scheduling options and transparency while Fair Workweek laws simultaneously restrict their ability to make last-minute changes. Solving this requires investing in scheduling systems that give employees visibility and input while maintaining the advance planning needed for compliance.
Technology adoption accelerates but creates new challenges
AI and automation moved beyond theoretical applications in 2025 and will become operational necessities in 2026. Organizations are demanding true hands-off automation that actively handles tasks rather than just supporting work, particularly as many operate with leaner teams that can't afford tools requiring constant manual intervention.
For shift-based businesses, AI applications focus on labor forecasting. Systems now analyze historical sales data, booked appointments, local events, and weather patterns to determine how many employees should be on shift any given day. This moves beyond simple historical averaging to account for complex factors that influence demand.
The gap between using AI and using it well is becoming a significant competitive divide. While adoption has grown throughout 2025, especially in hiring and recruitment, only 25% of workers receive formal AI training from employers according to global workforce research. Workers report saving an average of two hours per day using AI tools, but without guidance on how to channel that recovered time into valuable activities, the productivity potential dissipates.
For 2026, the technology implementation challenge is less about whether to adopt AI and more about how to integrate it into existing workflows without creating new friction points. Scheduling systems need to provide intelligent recommendations while still allowing managers to apply human judgment for situations algorithms can't anticipate. The systems that succeed will be those that make compliance automatic rather than something managers must remember to check.
What the operating environment actually means for daily management
The 2026 labor landscape creates contradictions that frontline managers must navigate daily. Unemployment rises but engagement falls, meaning you have more applicants but keeping good employees engaged remains difficult. Wage growth pressures persist even as job-switching confidence declines. Fair Workweek laws demand more planning while business volatility requires operational flexibility.
These aren't problems to solve once and move on. They're ongoing tensions to manage through better systems, clearer communication, and recognition that the shift-based workforce environment has permanently changed from what existed before 2020.
Operators who treat 2026 as a return to pre-pandemic labor conditions will struggle. Those who recognize the new dynamics and adapt their practices accordingly will find opportunities to build competitive advantages through superior workforce management even as competitors continue fighting labor battles with outdated approaches.
The data shows where things are heading. How you respond determines whether your locations struggle or thrive in this next phase of the workforce evolution.
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