The Corner

The Labor Market Is Still Depressed, Basically Everyone Agrees

In theory, the American economy has been in recovery for a while. However, as we know, this has hardly been a vigorous recovery: Many people have left the labor market, many are likely under-employed, and many others are still hoping to find a job. These the main findings from today’s CBO report, called “Slack in the Labor Market“:

  • The labor force participation rate is well below what CBO estimates would be achieved if the demand for workers was currently stronger—that is, well below the potential participation rate that reflects the estimated effects both of demographics (such as the age distribution of the population) and of the number of people who have left the labor force permanently in response to the recession and slow recovery;
  • The unemployment rate is above CBO’s estimate of the natural rate (that is, CBO’s estimate of the unemployment rate arising from all sources except fluctuations in aggregate demand);
  • In combination, the shortfall in labor force participation and the elevated unemployment rate have resulted in substantially lower employment in 2014 than would otherwise be the case; and
  • The share of part-time workers who would prefer full-time work is significantly higher than it was before the recession, and the rate of long-term unemployment is still about a percentage point above its average rate during the years before the recent recession.

There are a few other signs that the job market isn’t back to normal: First, according to the University of Chicago economist Steven Davis’s Dice-DFH Vacancy Duration Measure, firms are taking almost 25 working days on average to fill vacant positions. That’s not only longer than it was before the recession — it’s also a 13-year high. Bigger companies (those with 5,000 or more workers) take even longer: 58.1 working days on average. The Wall Street Journal has a chart that illustrates the trend nicely:

As the Journal notes, longer times to fill positions is the sign of a thriving economy, since it suggests that there are more positions open than people able to fill them. Here are a few suggestions from the Journal as to what’s different now:

  • Uncertainty about the future of the job market makes employers reluctant to commit to hiring
  • Employers are more picky than they were, since they may only have the chance to hire one person where in the past they would have been able to hire more
  • Increased pre-hiring screening and tougher credential requirements make it harder to find workers who would pass these hurdles
  • The existence of social networks like Linkedln expands the pool of potential workers beyond those actively looking for work, but it may also slow down the process
  • HR recruiting departments may not have fully recover from the crisis and may not yet be fully staffed to fill the demands of job searches and screening

Here is a very telling quote from the story:

Even as he looks to speed up hiring, Mr. Crum wants to make sure the process doesn’t get too easy. Getting the right people into the company is the most important thing, he says, and the added rigor in hiring helps.

“When there’s a larger pool out there you can make mistakes and there’s another one standing in the queue,” he says. Now, “when you hire someone you want to make sure they’re the right one.”

So that’s from the employers’ side. On the employee side of the equation, you can see that the market hasn’t recovered as it should have by looking at, among other indicators, the number of quits. Here is what I wrote in my Reason column about Millennials and the labor market on this issue:

The number of quits, defined by the BLS as “generally voluntary separations initiated by the employees,” serves as an indicator of the health of the labor market. A high quits number tells us that people are willing or able to leave their jobs for better opportunities. Five years after the recession ended, the quits rate hasn’t grown as fast as one would hope. At a 1.8 percent level, it is still lower than it was at the beginning of 2007. 

According to my colleague at the Mercatus Center Keith Hall, this is a sign that there may be fewer opportunities for carrier improvements in today’s labor market or a sign that employees currently employed have become more risk-averse about changing jobs. Incidentally, the consequence is stalled careers for younger Americans, one of the many obstacles they face today. I wrote about that here.

Also on this topic, economist and former chairman of the Council of Economic Advisers Ed Lazear had a nice piece a few weeks ago, called “Job Turnover Data Show Lots Of Churning, Little Job Creation,” that’s well worth reading. Here is his conclusion:

The Fed is following JOLTS and the most recent report provides some positive news.But to produce a truly healthy labor market, we need to create a positive environment for hiring.

Active hiring means job growth and also ensures that workers are moved to their most efficient uses, improving economic performance, profits and wages.

Policies that lead to high investment, high labor productivity and a fluid labor market are the ones most conducive to job growth.

 

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