A somewhat unique issue in the recent labor market is job openings (Labor Department-JOLTS Report) going from 6.94 million in December 2020 to 10.72 million in September 2022.  That’s a whopping 54.5% growth in unfilled jobs!  As with the many other labor statistics perpetually bombarding us, we see them, but don’t necessarily understand them.  A few quick observations and analysis may make the numbers mean more. . .

Since December of 2020, the unemployment rate consistently decreased from 6.7% to a recent 3.7%.  In numbers, that translates to 8.75 million jobs filled, or a 5.82% growth in employed workers over the roughly two-year period.

Labor reports express their message in both percentages and in numbers, making understanding that much harder for everyone.  To help us with understanding the jobs situation, let’s start with a way to relate the numbers to percentage points.  The unemployment rate is the percentage of the labor force that wants a job but currently is without one.  Recently, 1% of the labor force equals 1.64 million workers.  Using this information, let’s look at some recent trends in the labor market.

An Overview. 

The US labor force is roughly 164.67 million people.  Of that, 158.6 million are employed, with the 6.07 million unemployed.  Job openings numbered 10.7 million in September 2022, giving us 1.78 jobs open for each unemployed worker.

The monthly Jobs Report shows the economy is still producing roughly 230,000 jobs each month.  So where will the workers come from to fill all the openings?  A few top-level scenarios may show some forces that can fix the tight employment problem.

Rationalizing Work Force. 

Since the beginning of 2021 when the labor shortage started gaining press, many employers, fearful of not having enough workers coming out of Covid, hired or kept more employees than needed.  

Think of it as an inventory problem.  In times of shortages, companies carry a higher inventory level so they can run production without interruption.  

Now the future is a little clearer and profits are falling due to cost inflation and slowing demand.  To limit damage, employers are turning to that labor inventory and rationalizing not only how many workers they need, but also how many they can afford!  The results are layoffs as a cost-cutting means.  We are witnessing this in press releases daily now.

Cutting Forecasts. 

Companies are reviewing plans constantly to adapt to perceived future growth.  Additional workers are part of those plans.  As demand cools in the economy, many company plans will change to the downside, making current hiring for future growth unnecessary.  This should take a good chunk of those open jobs off the market.

Labor Reshuffle. 

Laid off workers usually start to look for another job almost immediately because bills still don’t self-pay.  Many will end up hiring into those open jobs.  Talent will redistribute to where it is most needed.

Increasing Productivity. 

Since January 2021 productivity is averaging -.486%.  As companies go through the adjustments outlined above, productivity will return to its long-term average of around 2%.  Same or fewer workers will maintain and/or increase output.

Productivity is the scorecard for how employers manage their labor resources.  If you compare the

-.486% rate above to the long-term average of 2%, you can definitely see something is wrong.

With all of that, let’s run a few numbers to see how the labor market can correct itself.

Rationalizing Work Force. 

This is a guess, but I think we have .5% to 1.5 % of the labor force involved in this, or roughly 1.7 million workers newly unemployed.

Cutting Forecasts. 

Economic uncertainty due to Fed tightening in the face of record high inflation, world upheaval in resource supplies and increasing political risks will have companies not only cutting future sales forecasts, but also dealing with cost inflation.

As a result, many of the jobs posted as ‘open’ today will vaporize quickly.  I’ll go with 1.5% of the labor force, or 2.47 jobs. 

Labor Reshuffle.  The results of the ‘layoff/hire elsewhere’ cycle show up in the filling of open jobs in the economy.  If we use .5% of the workforce, that’s another .83 million open jobs filled.

After you add it all up, we have 7.42 million open jobs with 7.7 million unemployed, or 4.7% of the labor force.

The key effect is the lessening of the current labor squeeze.  With better balance we will begin to see the rise in productivity we need to slow inflation and return to more solid growth.