It is a worker’s jobs market here in the US, as each month’s Job Openings and Labor Turnover Survey (JOLTS) has shown of late, including today. Most headlines noted that job openings surpassed 10 mn for the first time on the last day of June (latest available data). That’s true, but there are also other important datapoints in the report that go further in explaining the underlying dynamics of the labor shortage and worker migration patterns.
Before we get to those, a few comments on the latest job openings figure:
- Job openings as a percentage of the labor force rose to 6.3 pct as of June compared to 4.3 pct in February 2020, a month before shutdowns. (We use this calculation whenever we analyze JOLTS data to compare recent surveys to prior cycles since the US population grows over time.)
- Job openings currently far exceed the peaks of the last two economic cycles, when they reached a high of 3.2 pct in early 2007 and 4.6 pct at the end of 2018 (both as a percentage of the US labor force).
- So, what is a more-normal level of available positions? Using a pre-pandemic and pre-end of cycle boom figure from the 2010s, there were about 6.3 mn job openings at the end of 2017. Compared to 10 mn postings today, that means there’s about 3.7 mn in “excess” available positions.
Takeaway: job openings were already unusually high towards the end of the last economic cycle as the chart above shows, but now, they have risen to completely unprecedented territory. Keep in mind that we always take the job openings figures with a grain of salt. JOLTS is based on a survey and not only does “job opening” have an ambiguous definition, but it’s only grown easier and cheaper or free to list postings on the internet. That said, this data is clearly above prior cycle highs and highlights especially elevated hiring interest relative to prior periods.
Now let’s move on to our favorite dataset in the report – the quits rate – to help both explain why there’s such a large labor shortage and where workers are going:
- Our “Take this job and shove it” indicator – or quits to total separations – rose to a record high of 69.3% in June compared to 60.0 pct in pre-pandemic February 2020.
- As the chart below shows, not even the peaks of the last two economic cycles reached 60.0 pct.
- Quits as a percentage of the labor force were 2.4 pct in June 2021, compared to the all-time high of 2.5 pct in April 2021 and 2.1 pct before shutdowns.
As the chart below shows, quits were especially high at the end of the last economic cycle, far above the mid-2000s peak and more in line with the boom of the late 1990s.
- So, what would it take for the number of quits to return to more normal levels? We think 2.0 pct is a reasonable level for quits as a percentage of the labor force, slightly below the especially hot levels in 2018 and 2019 but still around the 2006 highs. At a current rate of 2.4 pct and a civilian labor market of 161 mn people, that means nearly 650k more people quit last month than would be the case in a more-normal environment.
Takeaway: many American workers continue to feel that they are financially secure enough to quit their jobs, either to take on another position or leave the labor market entirely. People tend to leave their jobs voluntarily only when they find a better (and hopefully higher paying) opportunity. With that backdrop, a high quits rate makes sense in the current environment with such high labor demand (our first point). We also see signs of the still-ongoing US suburbanization trend in this data.
There are three other factors contributing to a high quits rate:
- Reduced access to childcare due to restrictions from the public health crisis has forced many workers – especially women – out of the labor force to take care of their kids or family. Hopefully, more women can start returning to work as their children get back into in-person schooling in the coming months.
- Fears of infection continue drive people away from work, especially in customer-facing service sector jobs. The spread of new variants of the virus isn’t helping, and we are headed towards the typical Fall/Winter flu season in the US.
- An increasing number of older Americans (aged +55) are deciding to retire.
Bottom line: the current labor market is very unusual relative to the trajectory of prior recoveries. We continue to think quits is the most important and underappreciated datapoint to follow. That’s due to all the economic and societal trends it highlights (i.e. suburbanization, retirement, etc.). While it has not especially hurt the number of hires given that July’s Jobs Report was so solid, it does impact the participation rate which as Nick pointed out last night has been skewed by retirements. A heightened quits rate amid so many job openings also further show employers are not raising wages high or quickly enough.