In February, the country gained a net of 194,000 jobs, and in March we gained 216,000. However that is a very small fraction of the total number of jobs that were actually created. It subtracts out the number of jobs that were also destroyed in the month. In any economic environment, there will always be jobs being created, and jobs being lost. The difference between them is what gets the headlines.
However, with a month’s delay we get to look a little bit deeper and see not just the net number of jobs created or lost, but the totals on each side of the equation. It also tells how many job openings there were in the economy. This is in the “Job Openings and Labor Turnover Survey,” or JOLTS. Today we got the JOLTS for February.
In February, the total number of job openings jumped by 12.8% from January to 3.093 million. Relative to a year ago, they are up 22.6%. On the other hand, there were 13.67 million unemployed in February (falling to 13.54 million in March) so that still means there were 4.4 people looking for each available job in February. While that is better than a year ago when there were 14.86 million unemployed and just 2.52 million openings (for a ratio of 5.9 unemployed per opening), it still means it is tough to find a job.
If just private sector jobs openings are considered, the number of job openings rose by 14.1% on the month and is up 27.8% year over year. That is very real progress, but we still have a long road ahead of us in getting the country back to work. The ratio is still more than twice what it was before the start of the Great Recession, even if it is down 36.3% from its July 2009 peak. The graph below shows the ratio of unemployed to job openings (from this source).
In February, the total number of people finding new jobs rose 3.66% from January to 3.907 million. On the other hand, the total number of people losing their jobs (for whatever reason) rose by 4.98% to 3.792 million. The difference between the total hires and total separations is 115,000, which is above the 194,000 new jobs reported in the March jobs report for February (after revisions). There is, however, always a little bit of statistical noise between the two surveys, but this difference is bigger than usual, and I’m not sure what is causing it.
Relative to a year ago, the number of total new hires is up 3.25% and the total number of job separations is virtually unchanged (down 0.07%). On just the private-sector side, the number of people getting hired rose 4.35% on the month and is up 4.65% on the year, and the total number of job separations is up 5.24% for the month and up just 0.75% year over year.
People leave their jobs for three reasons: they quit, they get fired or laid off (or what the JOLTS report describes as “other,” but is mostly retirements). When you dig down a little deeper, the news gets better, particularly on a month-over-month basis. Year-over-year things still look like they are improving. There is a very big difference between getting a pink slip and telling your boss to “take this job and –” well, you know. In the latter case, most people already have another job lined up. If they don’t, it shows at least some confidence in the economy and their ability to get another job.
The graph below shows the number of job openings (yellow line), the number of people being hired (purple line), the number of people being laid off (or being fired or retiring, red bar) and the number of people quitting (blue bar). The difference between the purple line and the top of the stacked blue bar corresponds (roughly) to the number of net jobs gained or lost in the economy in that month as reported in the big employment report. Note that the yellow job openings line is now at its highest point since the fall of 2008.
Unfortunately, the JOLTS survey only goes back to 2001, so it is of limited usefulness in comparing where we are relative to coming out of other recessions. One thing, though, that jumps off the chart is that both the rate of new hiring and the total number of job losses are well below historical averages. In other words, the key reason so many people are out of work is a lack of hiring, not an excessive amount of firing.
You may note that the number of job openings is always lower than the number of hires. That is because the number of job openings is a snapshot of the last day of the month, while the number of hires is for the whole month. Thus a job opening that comes about in the month and is filled within that month shows up in the hires, but not in the openings.
Another thing to note is that during the worst of the economy losing net jobs in late 2008 and early 2009, the total number of layoffs soared much more than did the total number of job separations. When it looked like the entire economy was coming apart at the seams, the last thing you wanted to do was quit your existing job.
That is changing fairly dramatically. The number of people who sang the Johnny Paycheck song to their bosses rose by an extremely strong 14.6% on the month, but is up just 7.97% year over year. As a percentage of all people leaving their jobs, it rose to 51% in February from 46% in January and is up from 47% a year ago. That is a significant difference, and is real evidence of more confidence in the economy and the overall job picture.
One Particular Concern
One thing that is a bit troubling is that the number of job openings has risen much faster than the total number of new hires. This also appears to have happened following the 2001 recession as well, although it was a slower process and not as dramatic. Since the JOLTS report is relatively new, it is not possible to say if that relationship is normal coming out of recessions, or if it really is different this time.
There is a concern out there that some of the unemployment that we are seeing in the economy is turning into structural unemployment rather than just cyclical unemployment. That is not a view I happen to share, but there are some serious people, including some of the regional Fed Presidents, who hold that view.
Structural unemployment occurs when there are mismatches between the jobs available and the abilities and locations of the work force. A job opening for a nurse in Seattle does not do much good for a construction worker who is out of work in Phoenix. I see no particular reason why the skills mismatch would have increased dramatically over the past two years.
The one area where there has probably been a big increase in skills mismatches is in the construction industry. That industry has traditionally been a source of relatively high paying jobs for those without a lot of formal education. Construction workers account for about a quarter of all job losses in the Great Recession, and they might have a particularly hard time finding work in other parts of the economy.
However, if there were a big structural mismatch, there would be some sectors of the economy where lots and lots of jobs are not being filled, and where wages were escalating rapidly as employers scrambled to find workers with the skills they need. With the exception of investment bankers, hedge fund managers, professional athletes and CEOs I don’t see any sectors of the economy where that is the case.
U.S. Workforce Far Less Mobile
There is a good reason though why the geographic mismatch would have increased. Historically, one of the great strengths of the U.S., especially relative to Europe, has been the geographic mobility of its labor force. Americans have always been a mobile people. If there are no jobs in Boston, we historically have pulled up stakes and moved to Austin. Europeans are far less likely to move from Athens to Amsterdam in search of a new job.
However, moving usually involves selling your current home. If you are $ 50,000 underwater on your current place, it means that you have to bring a check for $ 50,000 to the closing when you sell your house (actually more when you factor in the realtor’s cut). If you have been out of work for several months, chances are it is going to be hard to scrape up that 50 large. Still, most of the high unemployment levels we are seeing stems from cyclical unemployment (a lack of aggregate demand) not from structural factors.
Encouraging Report Overall
Overall, this report is encouraging, although it does deal with February, not March or April data, and is thus a bit stale. The economy will always have jobs being created and jobs being destroyed, and at much, much higher levels than the net number between the two that everyone tends to focus on. In a healthy economy, most people who leave their jobs will be doing so of their own accord, because they think they can do better elsewhere, not because the office is shutting down or drastically reducing the work force.
The sharp rise in job openings is very good news, as is the increase in the percentage of people who leave their jobs voluntarily. We still have far more people looking for work than there are jobs available, but at least we are making progress.
The overall level of job turnover is still very low. We do not have a problem with people getting laid off. In fact, that figure is at an all-time record low, although the record does not go back that far.
The problem is that relatively few new jobs are being created. That means that people with jobs can feel pretty secure, but that those who are out of work, for the lack of a more technical term, are screwed. The number of very long-time unemployed should be a national scandal, or at least something that people in Washington care about.
Deficit Cuts to Hurt Recovery
However, all the debate in Washington is going directly the other direction. The obsession with cutting the deficit short term is likely to derail — or at least slow down — the current momentum to getting the country back to work. That, in turn, will slow down the economy and thus further reduce tax revenues.
In short, the budget cuts are likely to be FAR less effective than advertized in actually cutting the deficit. The bulk of the cuts are aimed squarely at programs that would benefit those who are struggling and who have been looking for work for an extremely long time. Other cuts, such as cuts to IRS enforcement, seem designed to INCREASE the budget deficit, not cut it.
The GOP likes to say that it wants to see government run like a business. What businessman in his right mind, when faced with a severe cash flow problem, would substantially cut the firm’s accounts receivable department?
Yes, the long-term structural deficit needs to be addressed. No, the Ryan Plan — outside of its effectively destroying Medicare for anyone below the age of 55 — really does not help the long-term deficits. It matches almost dollar for dollar the spending cuts it proposes with additional tax cuts, and those tax cuts will go overwhelmingly to the very few among us who are doing very well economically, the top 1% who already collect almost 25% of the total income in the country, and over 40% of the total wealth.
On the Medicare side, the total cost for insuring people will rise dramatically, but it will be a problem for individual seniors, not for the Federal Government. Millions of them would simply be unable to get health insurance, and those that are able to get it would have to spend a massive percentage of their income to do so, as the price of insurance rises faster than the value of the vouchers that would subsidize it.
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