Key takeaways:
- Global employee engagement dropped for the second consecutive year in 2025, reaching a five-year low, and declining manager engagement is the primary driver.
- Engaged managers are the top non-technical factor determining whether AI investments produce organizational ROI, not training programs or communication campaigns.
- Large employers are more likely to reduce headcount after implementing AI, while smaller employers are more likely to expand.
Global employee engagement hit a five-year low in 2025. For the first time on record, it declined two years in a row. Your clients are focused on finding talent, and that’s a real problem. But the deeper issue, the one most of them are missing, sits one layer up.
According to Gallup’s 2026 State of the Global Workplace report, the largest ongoing study of the employee experience, the decline in global engagement isn’t distributed evenly across the workforce. It’s concentrated in management. And for staffing firm CEOs, that distinction matters more than most of the workforce trends getting column inches right now.
The manager layer is driving the engagement decline
Global engagement fell to 20% in 2025, down from a peak of 23% in 2022. Since that same year, manager engagement has dropped nine points. Between 2024 and 2025 alone, it fell five points, the largest single-year decline on record for that group. Non-managers, by contrast, saw a slight rebound last year.
Gallup’s data shows that declining manager engagement accounts for most of the overall drop. When the people responsible for activating everyone else disengage, the effect compounds through the entire organization.
Several pressures are converging to create this. Organizations are flattening their management structures, partly because AI adoption in some sectors has accelerated cuts to mid-level roles. The managers who remain are overseeing larger teams. Gallup’s research confirms that manager engagement declines as team size grows, though strong management development can offset that effect.
The emotional weight of the role is also showing up in the data. Managers and leaders are more likely than individual contributors to report daily stress, anger, sadness, and loneliness. Senior leaders generally evaluate their overall lives more positively. But their daily experience of the job is harder. Management has always carried that cost, but current conditions are making it more visible.
Engaged managers determine whether AI investments pay off
Here’s where this connects directly to what your clients are trying to accomplish right now.
In organizations that have implemented AI, Gallup asked what drives employee adoption. The top two factors were technical integration with existing systems and managers who actively champion AI use. Not training programs. Not communication campaigns. Managers.
In those same organizations, only 12% of employees strongly agree that AI has transformed how work actually gets done. Meanwhile, 65% of U.S. workers say AI has improved their personal productivity. Individual gains are there, but organizational gains are not materializing at the same rate.
That gap is largely a management problem. When the manager layer is disengaged, it doesn’t matter how sophisticated the technology is. Your clients can invest heavily in AI and still see limited organizational returns if their managers aren’t engaged enough to drive adoption. The constraint isn’t the tool. It’s the layer between leadership’s intentions and what workers do every day.
AI Is splitting the market along size lines
In organizations with more than 10,000 employees, AI implementation correlates with more employers cutting headcount than expanding it. Among smaller organizations, the opposite is true: more are expanding than cutting. AI adoption, in its current phase, appears to be compressing headcount at large employers while creating growth conditions at smaller ones.
For staffing firm leaders, that split is worth mapping against your client portfolio. If your business is weighted toward large enterprise clients, the AI-driven contraction cycle is a near-term risk worth planning for. Smaller and mid-size employers are more likely to be in growth mode and more likely to need staffing support to sustain it.
Diagnosing the real problem is itself a competitive advantage
In best-practice organizations (companies that treat engagement as a core strategic priority), 79% of managers are engaged. The global average is 22%, and the U.S. average is 36%. The gap between what’s typical and what’s achievable is large. It’s also evidence that the problem isn’t permanent.
A struggling management layer creates downstream problems for your clients. They have a harder time retaining the staff they have. Onboarding the candidates you place becomes more difficult. The organizational stability that long-term partnerships require starts to erode. Manager disengagement is ultimately a business performance problem, as well as a staffing firm relationship problem.
Most of your clients are focused on headcount. They’re measuring fill rates and time-to-hire. They’re not measuring manager engagement, and they’re not connecting that metric to the outcomes they actually care about. Staffing agencies that understand this connection, and can bring it into client conversations, are doing something most competitors aren’t.
They’re competing on strategic value, not just delivery.
