Current boss Southgate will hold talks with the FA after the Three Lions were knocked out of the World Cup by France on Saturday.
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The 52-year-old has admitted he will consider his position despite being contracted until 2024.
Things could have been different for England if Harry Kane did not miss an 85th-minute penalty in the 2-1 quarter-final defeat.
The Three Lions have been transformed during Southgate's five-year tenure and the performance against Les Bleus was indicative of that, despite the result.
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And Hoddle believes Southgate deserves to stay if he chooses to.
The former midfielder told talkSPORT: "I think he has earned the right to go for another two years.
"If he can get this team of very good young players over the line in a tournament… we're getting closer.
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"I thought we had a hell of a chance, especially as it was unfolding. We had the experience of getting to a semi-final and then a final, the next part is winning.
"I was very optimistic and I thought they played very well. He needs to go away and have a little think.
"But he has earned the right to stay on. If he won the World Cup, he might've walked away and I wouldn't have blamed him."
Meanwhile, Hoddle believes Southgate could even return to the role in the future.
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He added: "At the end of the day, he is young enough to come back to this job.
"If he decides he wants to spend time with his family, get back to Premier League football, have a rest… he's earned that right.
"He could come back again as an England manager in the future. He has done that good a job.
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"There are a few things still missing, if not we would've won tournaments.
"But there was no outstanding team there that I thought, 'Wow - they're way ahead of us'."