Job Openings and Unemployment

Job Openings and Unemployment

By Aaron Pacitti

10 November, 2009

The October employment situation showed an increase in the unemployment rate from 9.8% to 10.2%. Similar, but more dramatic, was the rise in the labor underutilization rate—what the BLS calls U-6, which includes unemployed workers, marginally attached workers, discouraged workers, and involuntary part-time employment. This measure rose from 17.0% to 17.5%. U-6 is the broadest and most comprehensive measure of labor market slack.

Today, the BLS released its Job Openings and Labor Turnover Survey for September 2009. The data, presented in Figure 1, show an increase of 104,000 job openings from August to September.

The above picture suggests that the decrease in job openings may be leveling off, though nowhere near the level needed to provide a sustainable and substantial labor market recovery. For example, there are 6.8 unemployed worker for every job opening. Additionally, there are 12.2 underemployed workers (taken from the measure of U-6) for every job opening. These trends are shown in Figure 2.

Each of these measures shows a slight decrease and a potential leveling off in the number of unemployed and underemployed workers per job opening. While this is a welcome development, one must be cautious for two reasons. First, to the extent that the economy is recovering from the Great Recession, this recovery is and will continue to be fragile. There are ample signs that we could be in for a double-dip recession, or a W-shaped growth path. For example, the commercial real estate bubble is beginning to show signs of popping and the residential real estate bubble has been artificially inflated by the home-buyers tax credit. Continued weakness on both consumers’ and firms’ balance sheets suggest that recovery will be far from robust. Indeed, personal bankruptcies rose 28% since October 2008 and banks continue to tighten lending standards. Secondly, such intense completion for jobs will almost certainly keep wages depressed for the foreseeable future. This, too, will depress consumption levels and cause the recovery to be more fragile than it otherwise would be.

Taken as a whole, the uptick in job openings and the decline in the number of unemployed and underemployed workers per job opening should not be taken as a sign of labor market recovery. While these trends could portend a modest rebound in the labor market, aggregate economic conditions are working against a sustained labor market recovery.