While reading this opinion piece by former Chairman of the President’s Council of Economic Advisors (try saying that three times quickly), Edward Lazear – a quite astounding statistic that I was unaware of was revealed. Mr. Lazear makes the case the job market feels so rotten (outside of government statistics offices) because the number of actual hires in recent months has been no different than it was at the depths of the Great Recession. The main difference between the two periods is simply that job cuts have slowed substantially. Here are his data and comments:
- Why don’t American workers feel that the labor market is on the mend? After all, the May 6 jobs report could suggest that the labor market is improving. Nonfarm employment rose by 244,000 and employment growth over the last three months is averaging over 200,000 per month.
- The fact is the jobs numbers that create so much anticipation from the business press and so many pundit pronouncements do not give a clear picture of the labor market’s health. A better understanding requires an examination of hires and separations, or what the Bureau of Labor Statistics calls Job Openings and Labor Turnover Survey (JOLTS) data. Here are some surprising facts:
- …. the increase in job growth that occurred over the past two years results from a decline in the number of layoffs, not from increased hiring.
- In February 2009, a month during which the labor market lost more than 700,000 jobs, employers hired four million workers. In March 2011, employers hired four million workers. The number of hires is the same today as it was when we were shedding jobs at record rates.
- We added jobs because hires exceeded separations, not because hiring increased. There were 4.7 million separations in February 2009. In March 2011 that number had fallen to 3.8 million. The fall in separations reflects a decline in layoffs, which went from 2.5 million per month in February 2009 to 1.6 million per month in March 2011.
- The decline in layoffs is not unexpected and does not necessarily reflect labor-market health. Layoffs tend to occur early in a recession. When an economy has reached bottom and has already shed much of its labor, layoffs slow. But that doesn’t mean that the labor force is recovering. We could have high unemployment and a stagnant labor force even when layoffs are low.
- In a healthy labor market like the one that prevailed in 2006 and early 2007, American firms hire about 5.5 million workers per month. Recall that the current number of hires is four million and it has not moved much from where it was two years ago.