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Beyond BLS briefly summarizes articles, reports, working papers, and other works published outside BLS on broad topics of interest to MLR readers.
Employment in the United States has changed drastically since February 2020. After an all-time high unemployment rate and all-time low employment–population ratio in April 2020, the figures have since returned to prepandemic levels. In May 2020, hires reached a record total, while job openings achieved a new peak in early 2022. Overall employment for the nation as a whole has increased for 26 consecutive months. All of these data point to the labor market currently being “hot,” meaning that firms are able to successfully expand employment when hiring.
In “A closer look at a hot labor market” (The Hamilton Project, Brookings Institution, October 27, 2022), Lauren Bauer, Wendy Edelberg, and Sara Estep use data from the Job Openings and Labor Turnover Survey of the U.S. Bureau of Labor Statistics to examine the state of the 2022 labor market. Specifically, the authors investigate whether a “tight” (meaning that firms are unable to successfully expand employment when hiring) or hot (firms are able to expand) labor market affects employment expansions of firms that are considering hiring workers.
In their analysis, the authors first plot the relationship between the unemployment rate and the job openings rate for each month from March 2001 to August 2022 to illustrate the tightness of the labor market. The plot reveals that compared with the unemployment rate, the job openings rate in 2021 and 2022 is disproportionately high. This result shows an extremely tight labor market because employers are unable to fill open positions. Furthermore, of the 14 industries researched for this analysis, the authors find that in August 2022, the number of job openings in each of these industries outpaced the number of hires, as compared with 6 of the same 14 industries in 2014.
Next, the authors study the relationship between job openings and hires by looking at the data since March 2001. The data did not strongly support a tight labor market, because the historical data indicate a greater than 1-to-1 ratio between the two variables (meaning that the number of job openings tend to increase by more than one for each increase in hires). In addition, when the plot mentioned earlier is modified to include the hires rate rather than the unemployment rate, the results are more closely aligned to the past two decades.
Bauer and coauthors then look at the rising quits rate, noting that noncyclical factors, such as increased poaching by firms, have likely clouded the relationship between the quits rate and the unemployment rate. Therefore, a new indicator called “net hires” (total hires minus total separations) is introduced. By plotting net hires with job openings, the authors show that the labor market in 2022 was similar to the 2016 through 2019 period.
To close, the authors assert that the labor market will likely become both less hot and less tight with the Federal Reserve’s current focus on lowering inflation. Once the labor market cools, job openings will decline at a faster pace than hires. They also point to research on unemployment rate trends sorted by type (temporary versus permanent job losers) that demonstrate that hiring levels from November 2020 to November 2021 have not changed much from 2015 and 2016 levels.