More Quits means the Job Market is Looking Up

This week’s Job Openings and Labor Turnovers Survey (JOLTS) had some good news about the labor market.  The JOLTS survey, which began in 2001, gets much less attention than other BLS reports.  The results released on Tuesday indicate that more private sector workers quit their jobs in the first two months of 2012 than at any point since 2008.  Quits are strongly pro-cyclical.  Workers are much less likely to quit their job if they don’t already have a job offer or they are pessimistic about their prospects for finding a new job.

The JOLTS survey indicates that 3.4 million workers quit their jobs in January and February, up almost 18% from early 2010, when only 2.9 million quits occurred.  The job market still has a long way to go; between 2002 and 2008 an average of 4.8 million quits occurred in the first two months of each year.  In other words, quits are about 29% below their pre-recession average.

Senior Recovery or Delayed Retirement?

A closer look at today’s BLS jobs report reveals that 30% of the job gains in the past two years (and 27% in the past year) have been due to increases in the employment of adults age 65, despite the fact that senior citizens represent less than 5% of the labor force.  In March 2012 there were one million more employed adults age 65 and above compared to March 2010.  Employment growth among seniors has been about nine times higher than for the rest of the adult population.  The rapid job growth for seniors is because: (i) we added 3 million seniors in the past two years, and (ii) older workers are delaying retirement.  The 2008 recession and sharp drop in home values reduced the wealth of many households.  It is likely that many workers who reached age 65 in the past two years have delayed their retirement in response to the decline in their net worth.

Higher Education and the Labor Market Recovery

The February jobs report generated a lot of buzz: employment increased by almost 2.6 million in the past twelve months according to the household survey.  Unfortunately a more careful examination of the data indicates that there has been no recovery for workers with a high school diploma or GED, or for high-school dropouts.  The jobs gap for less educated workers is a structural, not cyclical, labor market problem.  Moreover, the fastest grow segment of the labor market is part-time employment for adults age 20-24, most of whom are enrolled in a two-year or four-year college.  One out of five jobs added in the past year were part-time jobs for college-age young adults. 

There are three groups of workers that account for all of the employment gains in the past twelve months: adults with a college degree, adults with some college education, and part-time workers between the age of 20 and 24. 

Here is how employment has increased in the past twelve months:

  • An increase of 3.0% (1.31 million) for college graduates age 25 and above.
  • An increase 2.2% (753,000) for adults age 25 and above with some college education.
  • An increase of 10.7% (527,000) in part-time employment of adults age 20-24.
  • No change in employment for the rest of the labor force.

Almost all of the employment gains in the recovery have accrued to college graduates, part-time workers who are college students, or adults who previously attended college.  About 51% of job gains in the past year were achieved by college graduates, 29% by adults who attended college but did not receive a bachelor’s degree, and the remaining 20% by part-time jobs for adults in their early 20s, the majority of whom are college or community college students.  The remaining 40% of the workforce have seen no net new jobs in the past year.

It is quite remarkable that college-age workers in part-time jobs are responsible for 20% of employment growth in the past year even though they are less than 4% of the workforce.  Many students have delayed college completion and took a part-time job, because of the weak labor market.  These students want full-time employment that will allow them to utilize their education and training, move out of their parents’ homes, and repay their student loan debt.  The growth in part-time employment of college students is an indication of the labor market’s underlying weakness.

The Frozen Labor Market

The labor market recovery of the past two years ago has not gained enough strength to rule out the possibility of a lost decade.  The recovery is especially weak for less educated workers and for cities devastated by the housing market collapse.  The economy is in better shape than three years ago but we would need to add 10 million full-time jobs to return to pre-recession employment to population ratios.  It is doubtful that 2012 will be much better than 2011 because the labor market appears much less dynamic than it was just a decade ago.

The recovery is weaker than the headlines suggest.  The unemployment rate has fallen by 1.4% over the past two years but this is largely due to workers leaving the labor force; the labor force participation rate has declined by 1.1% since January 2010.  The participation rate has been trending down for years so a small part of this decline was expected.  Nonetheless we should not be encouraged by declining labor force participation during a recovery.

The following figure presents a disconcerting trend: hires and separations have fallen steadily relative to the size of the labor force over the past decade.  The labor market is much less dynamic than it was prior to the Great Recession.  Although companies are laying off fewer workers, they are also hiring fewer workers, and employed workers are reluctant to quit.  Consequently new labor force entrants and job losers face fewer job opportunities and struggle to find a job.

Gross labor market turnover, measured by the sum of hires and separations per labor force participant, has fallen 25% since 2002.  This indicates a labor market that is more sluggish and less dynamic than it was just a decade ago.  Companies may be reluctant to hire because they are uncertain about: (i) the strength of the economic recovery, (ii) health care costs, or (iii) whether temporary tax code provisions will be extended or curtailed.  Hiring rates may also be weak because jobless workers lack the skills and experience that companies demand, or because start-ups can’t obtain financing for their new ventures.  A robust recovery must include much more hiring so that enough jobs are created to employ new graduates and the long-term unemployed.  This won’t happen if the labor market remains as sluggish as it has been since 2008.


We are producing more with fewer workers; U.S. employment is below the pre-recession peak of January 2008 but output (real GDP) is 1.2% higher.  Employment in the private sector and state and local government has declined over the past four years while Federal employment has increased.  Since January 2008:

  • Private sector employment declined by 4.5%
  • Federal government employment increased by 3.4%
  • State government employment declined by 1.6%
  • Local government employment declined by 2.8%

Is the decline in state and local government employment a drag on the economy as Paul Krugman has argued?  Or have state and local governments, like the private sector, become more efficient and deliver more and better quality services with fewer employees?  This is impossible to tell from National Income Accounts data which only measure the cost of government spending and not the value of the government services provided.

It is important to put the recent declines in state and local employment into perspective.  In the past fifteen years local government employment has grown almost twice as fast (17.5%) and state government employment has grown slightly faster (10.3%) than private sector employment (9.1%).  State and local government has grown relative to the private sector for decades.

The recovery/stimulus legislation was designed to bolster state and government spending.  However, as John Taylor testified to Congress, state and local governments used stimulus funds largely to reduce borrowing rather than increase expenditures.

Paul Krugman argues for more state and local government spending on goods, services and investment.  (He admits that “safety-net spending … has soared in this slump.”)  Keynesians believe that if spending were $340 billion higher (about 2% of GDP), GDP would be 3% higher due to the “multiplier” effect and the unemployment rate would be 1.5% lower.   A “multiplier” argument is a smokescreen for the real debate about the appropriate size and scope of government.  Some state and local government spending/employment cuts make sense if they eliminate waste and duplication but that is the opposite of what “multiplier” calculations would conclude.

In addition many leading economists such as John Cochrane and John Taylor are skeptical of large multipliers for stimulus spending.  More importantly, the “multiplier” argument says nothing about which programs should be expanded and whether any programs should be cut.  The emptiness of a “multiplier” justifcation for government spending is clear when one recognizes that Keynesians believe that government reductions in waste and fraud would lower GDP and raise the unemployment rate.

One of the most important election issues is the debate over the proper size and scope of government.  The debate would be more informative if it focused on the direct costs and benefits of government programs, assumed that programs must be paid for even if financed through bonds, and did not rely on possible “multiplier” effects to justify spending.

Part-Time Recovery

The unemployment rate and the monthly change in total payroll employment are clearly the most widely watched labor market indicators.  Neither of these statistics measures an important consequence of the 2008 recession: adult men are working part-time at record rates.  As the labor market turns the corner in 2012 the most important leading indicator may be the fraction of adult men employed in part-time jobs.

The following figure shows that the fraction of employed men who work part-time nearly doubled between 1986 and 2011.   By 2011 about one third of employed men age 20-24 worked part-time, and 7.4% of employed men age 25-54 held part-time jobs.  About 80% of the increase in part-time work for the 25-54 age group occurred during the 2008 recession.  About 2.5 million full-time jobs were lost during the recession for men in the 20-24 and 25-54 age groups.  It is less well known that the recession caused about 1.5 million adult men in these age groups to switch from full-time to part-time work.  The patterns are somewhat different for women, but I will leave that for another post.

The following chart shows that the overall employment to population ratio dropped by 11.4% for men age 20-24 and 6.7% for men age 25-54 between January 2008 and January 2010.  These large employment declines understate the depth of the downturn because they treat all jobs the same, whether they are part-time or full-time.  The full-time employment to population ratio dropped by 13.8% for men age 20-24 and 8.9% for men age 25-54.  These precipitous drops in full-time employment rates were accompanied by increases in part-time employment rates of just over 2%.

The labor market has been slowly recovering since January of 2010.  The following chart shows that the overall employment to population ratio for men age 20-24 grew by 4% over the past two years.  The length of the workweek did not change much for these younger men because about two thirds work full-time, and full-time employment growth was about double part-time employment growth.

The employment to population ratio of men age 25-54 has grown by 1.5% since January of 2010.  The full-time employment rate increased by 2% while there was a slight decrease of 0.5% in the part-time employment rate.  The length of the average workweek increased slightly over the past two years these men as some part-time jobs were replaced by full-time employment.

A necessary component of a solid recovery is the transition to full-time work for the (at least) 1.5 million adult men who work part-time jobs because of the weak economy.  This change will not appear as an increase in payroll employment or a reduction in the unemployment rate.  A key leading indicator that that the economic recovery is finally gaining strength will be more substantial decreases in the fraction of adult men who work part-time.

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