A welcome jolt to the labor market

The U.S. Bureau of Labor Statistics yesterday released the Job Openings and Labor Turnover Survey data for November 2014. This most recent set of data contains information on labor market dynamics, including data on hires, quits, layoffs, and job openings. While the data lag behind the well-covered jobs report by a month, the JOLTS report is another piece of evidence that the U.S. labor market recovery is continuing apace. And while several weaknesses are evident in the data, the overall picture is encouraging.

The new JOLTS data contain several good signs for the labor market. One is that labor market slack is on the decline. According to the data, the ratio of unemployed workers to job openings fell to 1.8 to 1. That means for every job opening, there are 1.8 unemployed workers potentially available to fill it. This ratio was fallen dramatically since the depths of the recession in July 2009 when the ratio was 6.8. Some of this decline is due to discouraged workers leaving the labor force and therefore not counting as unemployed, but the number of openings has also significantly increased recently.

At the same time, the hiring rate and the opening rate for the labor market are near their pre-recession levels. Employers are posting jobs at about the same rate they were before the Great Recession began in December 2007.

But the report isn’t all sunshine. Some shadows are still hanging over the labor market.

One problem is that workers aren’t quitting their jobs at a high rate. Large numbers of workers quitting their jobs can be a very good sign for the labor market. For the most part, workers do not quit their jobs unless they think they can get another job fairly quickly. So an increase in the number of workers quitting is a sign of confidence in the overall labor market. The quits rate in November was 1.9 percent, according to the JOLTS data, below the pre-recession level of about 2.2 percent. Yet the rate has been increasing recently and is up significantly from its recession-level low of 1.3 percent during 2009.

Given the new data, the other issue is movement in the so-called Beveridge Curve. This curve depicts the relationship between the job opening rate and the unemployment rate. After a recession, the labor market is supposed to move along the curve as more jobs are offered and the unemployment rate declines. But during this recovery the unemployed rate is still quite high given the jobs opening rate.

This lack of movement is most likely due to the historically high levels of long-term unemployment, as research by economists Rand Ghayad and William Dickens of Northeastern University shows. This is a problem in one of two ways: Either people are trapped out of the labor force forever or growth isn’t strong enough to get them back in just yet.

Of course, these JOLTS data only go up to November of last year. The December jobs data shows a fall in the unemployment rate so we may see some movement when the JOLTS data for December are released next month.

As these two issues show, problems still abound in the U.S. labor market. But looking at this data release in conjunction with other data, the labor market is healing. A year or so ago, anyone looking at the labor market couldn’t say that confidently. Now, while the labor market seems to have decidedly left that very shaky period, the next test will be to see if the pace of healing can actually accelerate.