Our strange job market persists, with more jobs than people to fill them less than a year after the largest jump in unemployment in American history. Today’s jobs report puts the unemployment rate below 4 percent, down 0.3 percentage points from last month, to 3.9 percent.
The unemployment rate is unlikely to get too much lower. There will always be some people who are unemployed because they’re in between jobs. In February 2020, the unemployment rate was 3.5 percent. The last time it was below 3.5 percent was May 1969. The lowest it has ever been was 2.5 percent in May 1953. We have 888 months of unemployment rate data going back to 1948. In only 124 of those months was the unemployment rate below 4 percent.
People who want to work can find work. That’s good news. Less than a year after a recession, it’s very unusual for this to be the case. Low unemployment is good.
If you’ve been around conservative labor-policy debates for long, though, you know what’s coming: “But the labor-force participation rate!” This is not a frivolous point, and Alan Cole is sounding the alarm bells over at Full Stack Economics about the Fed’s sanguine attitude toward labor-force participation. Cole faults St. Louis Fed president James Bullard for arguing that since labor-force participation is back on its pre-pandemic trend, that means the labor market is very strong. Cole writes:
It is inevitable that labor force participation should decline some over time because seniors are increasing as a share of the population. But this trendline greatly overstates that effect by capturing some cyclical job loss.
Here’s the problem: it is not what we’d call a “peak-to-peak” trend line. It starts in January 2000, at the very top of a business cycle, and puts that directly on the trend. Then rather than aiming for the February 2020 peak, it ends up below. It’s more like “peak-to-mid-cycle,” intersecting the actual data series in the mid-cycle year of 2017 rather than early 2020.
The trendline, as drawn, essentially bakes in part of the Great Recession as a long-run inevitability. But the Great Recession was undesirable, and our economy as recently as two years ago was exceeding the trendline. Why not target that again?
It’s an interesting question and one that policy-makers will need to consider. With employers across the economy crying out that they can’t hire enough workers, boosting labor-force participation seems like a good idea.
Joseph Politano writes at Apricitas that the indicator he is watching for in labor markets over the next few months is layoffs. Ordinarily, businesses hire seasonal workers during the holidays and then lay them off in January, he writes. This is especially true in retail, transportation, and warehouses. “This year, however, the tight labor market may push firms to retain more of their seasonal workers, dampening layoffs and strengthening headline employment numbers,” Politano writes.
He goes on to say:
With hiring and wage growth both near record levels, firms are more anxious than ever about preventing worker turnover. This is especially true at the lower ends of the income scale where income growth and quits have been the highest. The result has been a drastic decline in discharges—right now total layoffs are at their lowest levels in more than 20 years. In this environment, it is not unreasonable to assume that firms will work to retain more of their seasonal staff instead of simply letting them go. . . .
If firms do hold on to more of their seasonal workers, we could be in for some extremely strong employment growth readings over the next few months.
It’s important to remember that all of this is taking place while workers are voluntarily quitting at the highest rates on record. Heather Long of the Washington Post tweeted that a record 4.5 million people quit their jobs in November.
A record 4.5 million people quit jobs in November.
New records set for quits in these key industries:
-Hotels & Restaurants
-Transportation & warehousing (Nov 2021 tied w/Dec 2020 for all-time high) pic.twitter.com/FBq2NGPJUJ
— Heather Long (@byHeatherLong) January 4, 2022
But labor economist Heidi Shierholz noted that hiring numbers are even higher:
In the latest #JOLTS data, 4.5 million people quit, but *6.7 million* people were hired. People who quit are taking other jobs, not leaving the workforce. On net, the labor market is gaining a ton of jobs every month. 2/
— Heidi Shierholz (@hshierholz) January 4, 2022
That’s a good sign for the people who are in the labor force. The jobs are out there, and if people come out on the other end of this disruption in a job they enjoy better than the one they had before, that’s a good thing. Hopefully some of the people who have left the labor force will get wind of that and come back to fill the millions of available jobs.
It bears repeating: There has never been a job market like this less than a year after a recession. The patterns of specialization and trade that were disrupted by the pandemic are being reassembled one piece at a time, often in different configurations than before. That’s going to create some unusual data.
It’s also going to lead to changes in the way economists think about the labor market. In the wake of the Great Recession, they’ve become accustomed to thinking about aggregate demand first, since that was what was lagging. But now “people are starting to rethink what is going on,” writes Tyler Cowen at Marginal Revolution. “All coherent stories have to involve . . . the supply side of the labor market. Which is precisely what the orthodoxy had been telling you to ignore. Average is Over.”