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September 8, 2009
In the wake of the Bureau of Labor Statistics report on payroll jobs and unemployment, the too-often-overlooked Job Openings and Labor Turnover Survey report to be issued Wednesday will fill in some gaps to explain movements in the unemployment rate and payrolls.
Wednesday’s report -- for July -- will offer insight into the apparent contradiction that month, when the number of jobs lost was far less than in June but the unemployment rate rose.
Economists at the Federal Reserve Bank of Cleveland, looking at unemployment rates and payrolls, captured some of the distinction.
“The sharp rise in unemployment that we have seen,” economists Murat Tasci and Kyle Fee wrote, “is not due primarily to a sharp rise in separations but rather to the fact that once unemployed, the chance of finding employment has fallen dramatically. This means that unemployment durations are getting longer.”
Tasci and Fee added: “The unemployment rate provides information on the number of people who are unemployed as a fraction of the labor force at any given point in time, but when it rises, it doesn’t tell us much about why.”
Tasci and Fee turned to JOLTS and similar data for an answer noting, “This distinction could be important because each of these causes could result in a different set of problems for the labor force.”
They said, for example, long-term unemployment could lead to deterioration in skills and a resulting decline in productivity when workers return to their jobs.
“An economy in which 10% of the labor force was unemployed for three months and 90% was unemployed for one month would have the same unemployment rate as one in which 10% of the labor force was permanently unemployed all year round,” they wrote in a recent Cleveland Fed paper, “but the implications for human capital would be quite different in each scenario.”
Tasci and Fee looked at inflows into unemployment -- separations -- and outflows from the unemployment pool [hiring] and found, not surprisingly, when an economic downturn begins, separations start to increase and hiring decreases.
“What accounts for most of the subsequent rise in the unemployment rate,” they wrote “is the longer unemployment durations of those who are still unemployed. Once the economy finally starts recovering, durations get shorter as firms create new jobs and absorb some of the unemployed.”
That’s where JOLTS comes in. Even though JOLTS looks at data from the BLS’s establishment survey, which tracks jobs, it’s not misleading to compare the job -penings data with the number of individuals counted as unemployed (out-of-work, available-for-work and looking-for-work).
To clarify, take the case of an individual with two jobs. If one is eliminated, the number of jobs decreases but the number of people employed -- or the number of people unemployed -- is unchanged.
As of the last JOLTS report, there were 5.76 unemployed for every job opening, a record; 18 months after the 2001 recession began, the ratio was 2.42 to 1.
The clear statistical demonstration of a “hiring strike” is the extrapolated trend of hires from the JOLTS report. Through June (the last data point) there had been 24.7 million hires this year which would equate to 49.4 million for the full year, 12.4% below the 56.5 million hires in 2008, the weakest full year total since JOLTS began in 2001.
Every major industry sector is on pace to hire fewer employees in 2009 than in 2008:
* Construction down 407,000, 8.9%
* Manufacturing down 845,000, 23.3%
* Trade & Transportation down 1,393,000, 12.0%
* Professional & Business Services down 1,490,000, 14.8%
* Education & Health Services down 505,000, 7.8%
* Leisure & Hospitality down 1,451,000, 14.6%
* Government down 255,000, 6.9%
If there’s any good new in the JOLTS data it comes in the pace of separations: on track for 55.7 million this year, DOWN 6.3% from 2008 -- and also the lowest since JOLTS began, with only two industry sectors projected to increase separations in 2009 over 2008. Still, that could be because there are fewer workers left to be cut.
* Construction up 66,000, 1.3%
* Manufacturing up 348,000, 7.8%
* Trade & Transportation down 1,103,000, 8.8%
* Professional & Business Services down 958,000, 8.9%
* Education & Health Services down 405,000, 6.7%
* Leisure & Hospitality down 1,465,000, 14.4%
* Government down 150,000, 4.3%
Layoffs should decline because aggregate demand, while not improving, is stabilizing, though recent first-time claims for unemployment insurance, after dipping in June, have climbed back to a new, lower plateau.
According to Tasci and Fee, it is possible to measure how much unemployment would have increased due to each factor -- separations and hiring -- separately.
“Since the beginning of the current recession,” Tasci and Fee wrote, “the unemployment rate has doubled, and almost 95% percent of this change is explained by the decline in outflows [reduced hiring] rather than the increase in inflows [more layoffs].”
Mark Lieberman is the senior economist for the FOX Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.
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