Job Openings Signal Optimism, But Hiring Lags Behind
The U.S. Department of Labor’s Job Openings and Labor Turnover Survey tracks the number and rates of job openings, hires, quits, and separations in the economy every month. The data are important because the number of job opportunities available and the dynamic interaction between hiring and separations can signal turning points in a business cycle and pauses in economic recoveries and expansions.
The greater the number of job openings available, the greater the opportunities for Americans to enter the workforce or advance their careers. Moreover, the willingness and confidence of employees to leave their current jobs to take better opportunities is typically reflected in the quit rate (not shown) and is another indicator of the health of the labor market.
The data on job openings and labor turnovers are also important because they are watched closely by the Federal Reserve Board of Governors for the purpose of setting monetary policy. They are one of a dozen economic indicators that are part of Board Chairman Janet Yellen’s “dashboard” that is used to measure economic conditions.
For a variety of reasons, the number of job openings took a long time to recover from the deep recession in 2007–2009, but since 2014, it has climbed back above the previous business-cycle high set in 2007 and is now back near its historical peak set in 2001. Monthly job openings as a percent of employment averaged a record 3.9 percent in 2015, significantly higher than the average of 3.4 percent in 2006–2007, the peak of the last business cycle.
However, the number of new hires has only recently clawed its way back to the previous business-cycle high, and the hiring rate remains stuck at the jobless recovery levels that prevailed from 2002 to 2003. In fact, current job growth is as robust as it is only because the separation rate has remained relatively low as well. Monthly hiring as a percent of employment averaged 4.0 percent in 2015, just below the average of 4.1 percent in 2002 and 2003. The hiring rate during this economic expansion has been restrained by the onslaught of major regulations published over the past seven years, and especially the significant costs imposed on employers by the Affordable Care Act.
The barriers to entry and uncertainties caused by the growing maze of federal, state, and local regulations also have inhibited risk-taking activity and have contributed to the historically weak business creation during this business cycle. This, in turn, has restrained hiring over the past seven years.
According to the U.S. Census Bureau’s Business Dynamics Statistics, which track the number of new employer businesses created every year going back to the late 1970s, Americans are creating companies with paid employees at roughly half the rate at which they created them 35 years ago. Further, the Kauffman index of start-up activity shows that despite a recent uptick in 2015, the rate of business start-ups remains relatively low.
Since the end of the last recession, the hiring rate has been rising much more slowly than the job opening rate, indicating that the labor market’s problems also include labor supply issues. With the labor force participation rate at a 38-year low and employers continuing to express difficulty in finding employees with certain skills, it is likely that the hiring rate will continue to lag behind the job-opening rate for the near future.
Reversing these trends will require that we cut through the regulatory red tape that is strangling business creation, prepare Americans with the skills they need for today’s labor market, and update our labor and employment laws to reflect the 21st century digital workplace.
— Mark Wilson is Vice President and Chief Economist for HR Policy Association.
Next Up in the General Opportunity Section:
- See U.S. Department of Labor, Bureau of Labor Statistics, “Job Openings and Labor Turnover Survey,”
http://www.bls.gov/jlt (accessed June 2, 2016).
- See U.S. Department of Commerce, U.S. Census Bureau, “Business Dynamics Statistics (BDS),” http://www.census.gov/ces/dataproducts/bds (accessed June 2, 2016).
- See, for example, Robert W. Fairlie, Arnobio Morelix, E. J. Reedy, and Joshua Russell, The Kauffman Index: Startup Activity: National Trends, Ewing Marion Kauffman Foundation, 2015,
http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and%20covers/2015/05/kauffman_index_startup_activity_national_trends_2015.pdf (accessed June 2, 2016).
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