JOLTS and the health of the U.S. labor market
As the end of the seven years of zero percent short-term interest rates in the United States seemingly draws to a close, it’s time to take another look at the U.S. labor market and its continuing recovery from the Great Recession.
The widely covered Employment Situation report from the U.S. Bureau of Labor Statistics shows a 5 percent unemployment rate, steady employment growth, and nominal wage growth that is above its over-five-year level of 2 percent annual growth (although still well below healthy levels). But the bureau’s Job Openings and Labor Turnover Survey, also known as JOLTS, has become an increasingly popular dataset for measuring the health of the U.S. labor market, after Federal Reserve Chair Janet Yellen highlighted it in a speech back in 2013.
So what does the most recent JOLTS release say about the U.S. labor market?
Let’s start with the good news: The job openings rate has been growing quite strongly during the U.S. labor market recovery. The openings rate (the number of job openings divided by total employment plus the number of openings) can be interpreted as a measure of labor demand—an employer posting a job opening is signaling they want to hire someone in the relative future. A few months ago, this rate hit its highest level since the first JOLTS release in late 2000 (3.8 percent), and it is now above its pre-Great Recession level (3.6 percent).
Unfortunately, the openings rate seems to be the outlier among the JOLTS data. While openings have been on a tear, the rate at which businesses are hiring hasn’t increased nearly as quickly. The current hiring rate (3.6 percent) is decidedly below its pre-recession peak of 3.9 percent to 4.0 percent, and has essentially stayed flat since September 2014.
This divergence can be interpreted in a number of different ways. Among them is the hypothesis that workers don’t have enough skills to meet the demands of employers. But the lack of strong wage growth—a sign of employers competing for limited talent—is a point against that story. Another possible explanation is that a shift in bargaining power toward employers has made them more willing to create openings, all other things being held constant.
But the hiring rate isn’t the only JOLTS statistic that has stalled over the last year. The quits rate has been at 1.9 percent since April of this year, and it too has essentially moved sideways since September 2014. The change in workers’ willingness to voluntarily leave their jobs is a good sign of the state of the U.S. labor market: If workers are quitting at a higher rate, they probably got a new job elsewhere or think the labor market is strong enough that they’ll get a job soon enough. Quitting is a sign of increased bargaining power for workers and often accompanies stronger wage growth. Perhaps we shouldn’t be surprised at the lack of strong wage growth when the quit rate is still below its pre-recession level.
So, in the end, what information can we gleam from the JOLTS data? In short, the U.S. labor market has made real gains from the depths of the Great Recession, but there is a ways to go. Given the stall-out in the hire rate and the quits rate (as well as in the prime-age employment-to-population ratio), the U.S. labor market doesn’t seem to be gaining more steam as 2015 closes out.
The tepid nature of the recovery at this point is a good sign that when the Federal Reserve starts raising interest rates, slow and steady is probably the best way to proceed.