Tuesday, February 10, 2015

What Are Hires and Quits Telling Us About the American Labor Market?

While the overall JOLTS (Job Openings and Labor Turnover Survey) data has shown a substantial improvement since 2009, in fact, two important aspects seems to have stalled at levels that are below what were observed prior to the Great Recession.

Let's open with a bit of background.  The hires rate, calculated using the number of new hires divided by the total number of workers in the workforce, and the quits rate, calculated using the number of quits divided by the total number of workers in the workforce, are two of the most comprehensive measures that provide us with a sense of the health of the job market.  While job openings are important, unless employers actually hire workers, the number becomes somewhat less significant.  As well, a low quits rate shows that workers are locked into their jobs, for better or worse, because they are either unable to leave because of few alternate job opportunities or they are fearful of doing so because they will lose whatever sense of job security they have in their current job. 

Here is a graph from FRED showing the number of total non-farm hires since the end of 2000:

November's level of 4.688 million is below the pre-Great Recession level of 4.891 million in October 2007 and even further below the average of 4.931 million over the two year period from the beginning of 2005 to the end of 2006.

Now, let's look at the share of total employment held by new hires:

You will notice that the share of total employment held by new hires actually remained steady at around 3.2 percent to 3.3 percent for a three year period from December 2010 to January 2014, despite the drop in the unemployment rate.  It has only been in recent months that the share of new hires has risen, however, at 3.56 percent in November 2014, it is still below the 3.8 percent  level seen prior to the Great Recession and well below the 4.2 percent plus seen in the early 2000s.

Here is a graph from FRED showing the rate of non-farm quits:

Again, at 1.9 percent, the current quits rate is below the pre-Great Recession level of between 2.0 and 2.2 percent.

Let's close with this graph from the Economic Policy Institute that shows the number of "missing workers", those potential workers that are neither employed nor actively seeking work to help us put the current labor market into perspective:

At some point, these 5.8 million workers will want to/need to re-enter the workforce.

Progress at raising the hiring and quits rate, both signs of a healthy economy, have been both modest and bumpy, particularly given that we are rapidly approaching the sixth anniversary of the "end" of the Great Recession.  While the United States economy is creating jobs, as other data shows, it isn't creating enough jobs to stay ahead of the growth in the labor force (let alone accommodating millions of missing workers who have simply given up) and it certainly isn't creating enough good jobs that people are willing to take the risk of moving to a new job opportunity.  

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