Tuesday, September 2, 2014

Utah’s Employment Dynamics Remain Historically Low, But Improving

John Krantz, Research Economist

Employment dynamics looks at the churning in the labor market (e.g., hires and separations). This contrasts with labor market snapshot measures like monthly employment and unemployment. Employment dynamics provide important insights into the functioning of the labor market. Janet Yellen, Chair of the Federal Reserve, frequently cites employment dynamics in her national labor market assessments. These, in turn, influence the course of monetary policy. Both nationally and in Utah, the churning in the labor market is less dynamic today than it was in 2000. Recent research suggests the decline in employment dynamics stems from fewer employed individuals moving to new jobs, and fewer jobs today of short duration (less than three months).

In a recent speech, Ms. Yellen referenced employment dynamics data, along with other labor market data, to argue that the national labor market is still somewhat weak. Figure 1 shows the flows of hires, quits and total separations in the national labor market and is based on the Job Openings and Labor Turnover Survey (JOLTS) data from the U. S. Bureau of Labor Statistics (BLS). Ms. Yellen noted that the level of quits is still low, even though it has been increasing since the beginning of 2010. Nationally, the number of quits in January 2001 was roughly 3.4 million. In June 2014, the level was only 2.5 million.

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When quits are low, the general interpretation is that workers are reluctant to leave their current jobs because they fear they will not be able to find another job. It also implies that firms are not vigorously competing for labor through high wage offers that would induce individuals to more readily quit their current jobs.

JOLTS data are not available at the state level, but there is a Utah labor market churn representation   through the U.S. Census Bureau’s Longitudinal Employer-Household Dynamics (LEHD) program. Figure 2 shows the total hires and separations in Utah’s labor market and can be compared with the national JOLTS data in Figure 1. Figure 2 is the actual level of churn. As Utah’s labor force has been growing over time, the relative decline in churn is even greater.

A clearer method for viewing Utah’s labor-churn decline is to divide hires and separations by total employment. This yields labor flows as a percentage of total employment (Figure 3). Hires in the first quarter of 2000 were 25 percent of total employment, but were only 16.9 percent in the third quarter of 2013. This is nearly a 48 percent drop in the percent of hires. Nevertheless, the percentage of hires has been increasing since the low point of 14.1 percent that occurred in the third quarter of 2009.

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Why has the Utah labor market become less dynamic over time? The two recessions that began in March 2001 and December 2007 led to large declines in labor market dynamism, but each recession’s recovery has not returned the labor market to the levels found in 2000. Recent research by Hyatt and Spletzer, economists at the U.S. Census Bureau, finds that the decline in gross worker flows is primarily due to the decline in the number of short duration jobs (less than three months) and a lower level of job-to-job flows. In other words, firms appear to be offering few short duration positions and workers are tending to stay in their jobs longer once they find employment.

Is the decline in employment dynamics an indication of a poorly performing labor market? Hyatt and Spletzer say it all depends on the reason for the declines. If increased adjustment costs, increased uncertainty, or the loss of short-term employment that helps transition young workers into other jobs are the reasons, then the decline in dynamism would be viewed in a negative light. However, if increased quality of job matches, increased educational attainment (which is associated with more stable employment), or increased wages are the reasons, the lower level of employment dynamics would reflect a positive development in the labor market. Whether the decline was caused by good or bad factors was left unanswered because it was beyond the scope of their research.

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