Tuesday, July 17, 2012

The Improving U.S. Labor Market

The headline measure of U.S. labor markets, the unemployment rate, remains dismally high. It rose above 8% in February 2009, and so as of June 2012, it has now been above 8% for 41 months. The unemployment rate had been tiptoeing downward from its peak of 10.0% in October 2009 to 8.3% in January 2012. However, even that modest rate of decline seems to have levelled off, with an unemployment rate of 8.2% in June 2012.

However, under the headline unemployment rate, more detailed labor market data from the Bureau of Labor Statistics shows signs of improvement. Here are three examples from the July 2012 data on the Job Openings and Labor Turnover Survey).

One measure of the tightness of the labor market is how many unemployed people there are for each job opening. Back in the mid-2000s, the number of unemployed people per job opening hovered around 2. At the worst of the recession, it spiked above 6 unemployed people for every job opening. By May 2012, the ratio had fallen to about 3.5--certainly not a healthy labor market yet, but improving.

Another way to look at the labor market is to look at those getting jobs, which is the blue line showing"hires," and those losing jobs, which is the red line showing "total separations." Notice that in the mid-2000s, the blue line for hires is mostly above the separations line, and so the green line showing total employment is rising. During the recession, hires drop very quickly, and even those separations are declining as well, the red line is higher than the blue line, and total employment falls.  More recently, the blue line showing hires has been mostly above the red line showing separations, and so total employment has been growing again.

One last slice of these more detailed labor market numbers is to break down those who lose jobs into two categories: quits and layoffs/discharges. In a fairly healthy labor market, like the mid-2000s, quits in which people leave jobs voluntarily (often for an alternative job) are higher than layoff/discharges, where people lose their job involuntarily. In the recession, quits drop dramatically, because people were more motivated to stick with the job they had, while layoff/discharges rose as firms in trouble let workers go. More recently, the level of layoffs/discharges has dropped back to pre-recession levels. Quits have risen, which is a sign that alternative jobs are becoming more available. Although quits aren't back to pre-recession levels, they are again exceeding layoffs/discharges.