Bad news, job seekers--the economic recovery is probably occurring even more slowly than you thought.
The unemployment rate, according to a Friday Labor Department report, was 8.2 percent in June, the same as the previous month but nearly 2 percentage points lower than the recession-era peak reached in October 2009.
That’s a frustratingly slow decline, especially if you’re out of work. But when you compare it to the rate at which three other important indicators of labor-market health are improving--job openings, hires, and quits--it’s downright swift. A look at the latter paints a dismal picture for job seekers and the employed alike and isn’t showing signs of a big turnaround any time soon.
The data come from a separate monthly report from the Bureau of Labor Statistics known as the Job Openings and Labor Turnover survey. The JOLT data, which lag the release of the employment report by nearly two months, are collected from some 16,000 businesses and measure something known as “churn,” or hires and separations in the labor market. Churn has important implications for workers and the recovery, and the current rate is much lower than it would be in a healthy economy.
The pace of churn is tied to the unemployment rate--which, in turn, is tied to business and employer confidence--and generally moves in the same direction as the headline rate. But while both have shown slow, steady improvement over the past three years, churn has risen much more slowly, as the above graph indicates. That glacial pace of improvement provides a more accurate snapshot of the recovery.
“The unemployment rate is overstating improvements right now because so many people are dropping out" of the labor force, said Heidi Shierholz, an economist at the liberal Economic Policy Institute.
The difference is in the denominators. Unemployment is measured by dividing the number of people out of work by the number working and seeking work, also known as the labor force. When people give up looking for work, they drop out of the labor force, shrinking the denominator and bringing down the unemployment rate more rapidly than it would decline through job creation alone.
The hires and quits rates, on the other hand, aren’t influenced by fluctuations in labor-force participation. They are measured as a percentage of total employment, painting a clearer picture of the pace of improvement--a picture that really shows the meaning of frustratingly slow.
The hires rate has basically flatlined at 3.2 percent over the past year, and hiring remains 19.6 percent below the 2007 average. The pace of quits, which are actually an indicator of good health, signaling confidence in the economy and often better things ahead for the employee, inched up to 1.6 percent this spring after nearly two years of bouncing between 1.4 percent and 1.5 percent, and the number of voluntary quits remains 28.2 percent below their 2007 average.
This has important implications for job seekers, particularly young ones. A key source of jobs for young workers is older ones leaving theirs. When older workers are reluctant to quit, a normal source of jobs for workers entering the labor force disappears. “This is very bad for twentysomethings,” said Gary Burtless, an economist at the Brookings Institution. It’s also bad for the rest of the out-of-work population, nearly four of which are competing for each open job.
Churn isn’t just important to job seekers. Job holders also depend on quitting and finding new work for their professional advancement and wage growth. That, in turn, is tied to the country’s economic growth. Churn helps move workers from less productive posts to more productive ones. A recent National Bureau of Economic Research working paper by economists Edward Lazear and James Spletzer estimated that the cost of the reduction in churn over the recent recession was $208 billion, or 0.4 percent of GDP for three and a half years.
Friday’s jobs report previews the Job Openings and Labor Turnover data that will follow. With the economy plodding along at 8.2 percent unemployment and payrolls growing just enough to keep pace with population growth each month, expect the JOLT data to be even more disappointing--and telling--when it comes out.
Niraj Chokshi contributed.