Analysis of related figures has raised concern about whether this is deceptive. The measurement in question has to do with job churn, an indicator that signals whether employers are making a noticeable effort to recruit skilled staff from competitors. The implication is that if they are only hiring easily recruited unemployed workers, the economy may still be soft. When companies invest resources and effort to induce harder-to-recruit candidates who are already employed, it signals that activity is gaining strength.
Whether or not these trends change in the next few months could determine the direction of the economy - and the elections scheduled for later this year. JL
The Economist reports:
Just 9m workers were hired in the second quarter of 2009—the last of the recession—down from 12.8m in the fourth quarter of 2007, a fall of about 30%. About 80% of this decline in hiring was attributable to a fall in churn rather than a decline in job creation (see left-hand chart). The number of workers voluntarily leaving a job fell by nearly 40%, for instance. The pace of job creation in the economy slowed sharply, it is true, but most of the hiring chill can be attributed to a decline in churn.
A freeze of this sort matters. Based on the typical wage gain from job-to-job moves, Mr Lazear and Mr Spletzer estimate the efficiency cost of reduced labour-market churn during the crisis at about 0.4% of GDP a year
of 2011. That is the equivalent of $208 billion of lost output—a small hit compared with the impact of the recession itself but a meaningful and underappreciated economic cost of prolonged labour-market weakness.
This cost falls disproportionately on the young. Individuals who graduate from college and enter the labour force during a typical recession can expect an initial earnings loss of about 9% (compared with what they might expect in normal circumstances). This decline can be mitigated and eventually eliminated by leaps from firm to firm, through which young workers obtain new skills and find ever better ways to use their talents. That process is frustrated by a general slowing of labour-market churn.
A pickup in hiring alone is not enough to grant the labour market a clean bill of health, according to this analysis. Just as important is whether workers feel comfortable leaving the security of an old job for the prospect of higher returns in a new one. If a falling unemployment rate does not translate into more risk-taking among workers in jobs, then the labour market may be further from normality than is appreciated.
FIGURES on employment tend to encourage a black-or-white view of an economy. Either conditions are worsening and firms are shedding workers, as they did by the hundreds of thousands in 2008 and 2009, or times are improving and businesses are creating new jobs. Spirits leapt on February 3rd on news that America’s private businesses boosted their payrolls by 257,000 jobs in January, capping the country’s best 12-month employment performance in the private sector for over five years. But the headline figures represent just the tip of a large labour-market iceberg. Data provided by the relatively new Jobs Openings and Labour Turnover Survey (JOLTS) illuminate these depths.
Even in the darkest of days, labour markets remain busy. Growing firms hire to expand and even shrinking businesses seek out workers to fill important vacant positions. In December 2008, for instance, overall American employment dropped by nearly 700,000 jobs. Yet in that month more workers—over 4.1m in total—were hired into new positions than in December of last year, when net payrolls grew by 203,000. During a relatively placid economic period like the mid-2000s, about 65% of all hiring is associated with what economists have dubbed “churn”—the job-to-job movement of workers through the labour force, which neither adds to nor subtracts from total employment. Of the 12m or so hires that occurred in a typical pre-recession quarter, some 8m came from firms luring workers away from other firms.
Churn is a mechanism by which labour markets reallocate workers towards more efficient ends. In the typical job-to-job move (that is, without any intervening stint of unemployment) an American worker can expect a rise in wages of over 8%. This gain represents, at least in part, an improvement in productivity. As workers obtain skills and find better job matches, their output and earnings rise. And as firms obtain ever more suitable labour, they can afford to pay higher wages. In this way, the churning of the labour market contributes to growth in the potential output of the economy.
Although this ebb and flow is always happening, its strength is subject to the forces of the business cycle. When hard times hit, workers are less likely to make the leap from one firm to another. And when employees do move, firms are often reluctant to fill the freshly vacated positions. In a new analysis* Edward Lazear of Stanford University and James Spletzer from the Bureau of Labour Statistics examine how the recent recession affected these job-to-job moves.
Quit to get ahead
America is doing better than it was. The number of unemployed workers per job opening—a measure of labour-market tightness—has fallen from a peak of around seven workers to below four. That is contributing to greater job-to-job movement. The share of resignations in total job departures, which sank from nearly 60% to under 40% during the recession, is back at 50% (see right-hand chart). Yet there is still a long way to go. As of the second quarter of last year, churn was just 8% higher than it was at its trough.
Firms’ hiring behaviour remains subdued. When there are plenty of jobless workers to go around it becomes much easier for firms to find qualified individuals for open positions, and less important for them to lure employees from other businesses. But as markets tighten companies raise what economists call “recruiting intensity”. Work by Steven Davis of the University of Chicago, Jason Faberman of the Federal Reserve Bank of Chicago and John Haltiwanger of the University of Maryland suggests that firms’ recruiting efforts—as represented by advertising spending, hiring standards and compensation packages—explain about a third of the variation in the pace at which vacancies are filled. Recruiting intensity dropped by nearly 22% during the recession, they reckon, and has since rebounded by less than 6%.
New employment growth is most welcome, of course. But until employment churn returns to pre-crisis levels, the costs of America’s recession will continue to mount.
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