Smarter workers, fewer layoffs and more quitters: a tough talent market for employers.
[Note on the charts in this article, you can show/hide data series by clicking on the series in the legend.]
[Data updated for October 2019, or most recent as of that date]
The US Economy added 224,000 jobs in June 2019, and yet unemployment ticked up from 3.6% to 3.7%.
For all of the writing on the ‘war for talent’, it’s easy to forget that hiring and retaining skilled employees comes down to supply and demand. During times of high demand (as we are seeing now in the U.S.) the labor market tilts in favor of the ‘suppliers’ – namely individual workers. Employers face stiff competition for the limited talent pool. Employees who feel they are not getting a fair deal for their skills are more likely to seek options elsewhere. Let’s look at some of the factors at play in the US labor market today.
A Smarter Workforce
First trend: the US labor force is getting smarter. Or at least better educated. As the chart below indicates (courtesy of the US census) educational attainment in the US continues to improve with 35% of the population having achieved a bachelor’s degree or higher. Only 10% of the population dropped out of education before completing high school – half of what it was a generation ago. This continues to drop as the population ages. Educational attainment is highly divided down demographic lines (race, income), but overall educational attainment continues to improve.
Percent of the US population by educational attainment (1940-2017) – US Census data [source]
with 2008-2019 recession shown
Unemployment: Way down
The simplest measure of labor supply is, of course, the unemployment rate, which essentially indicates the volume of willing labor that is not currently put to use. So, a quick recap: After a dramatic surge during the recession, unemployment in the U.S. peaked at 10% before gradually recovering to a current low of 3.6% in May 2019. This is well below where we were pre-recession back in May 2007. (Note that I plotted the unemployment rate on the right-hand axis.)
Layoffs: Way down too
Now, let’s overlay the Bureau of Labor Statistics data on ‘Layoffs’ — the monthly rate at which organizations are dropping people from their payroll. From a steady pre-recession rate of 1.3% or 1.4%, we saw a surge to 2% a month. All of that unemployment had to come from somewhere, right? But then, organizations rapidly reversed course, and by May of 2010, we were back in the 1.3% zone. Since then, there has been a downtick to 1.1%. Companies just aren’t firing people like they used to, and workers are feeling more confident (1).
Quitting is back in fashion
So, what about people quitting? Before the recession, 2.2% of employees in any given month would hand in their notice. This does not include retirements or long-term sick leave. But as soon as the recession struck, workers battened down the hatches. If you had a job in 2008, you held onto it. The rate dropped as low as 1.3% before starting to recover at the beginning of 2010. At a pace that mirrors the decline in unemployment, workers started to feel more confident about chasing new opportunities. Today, quitters are back in fashion with a vengeance at a 2.3% rate. Clearly ‘quitters’ are not swelling the ranks of the unemployed. They are moving to new jobs or chasing new ventures.
Here is the historical date (‘Quits’ is the teal line):
Wage growth and inflation: Watch this space
As many economists point out, despite these trends we have not yet seen a significant acceleration in wage growth that would drive up inflation, and in turn, interest rates. But, it is reasonable to expect that to come next. In
If you want to see the Federal Reserve interest rate alongside the rest, it’s shown below in dark red. While the Federal Reserve responded aggressively by lowering the core rate in 2008, it has been more cautious in responding to the recovery. That said, you will see it start to creep up at the end of 2015. Today, the Federal Reserve is caught between fiscal policy and the politics of Washington, and the general consensus is that rates will go up, albeit cautiously in 2019.
Here is the historical interest rate, as set by the Federal Reserve (dark red):
Participation: Where have all the workers gone?
Let’s get back to the labor markets. There is one final data set we need to consider. It’s workforce participation, which is defined as “the civilian noninstitutional population 16 years and older that is working or actively looking for work.”
It turns out that the U.S. labor pool had been shrinking, relative to the population as a whole. This trend started in 2000 when the rate peaked around 67% and has declined steadily until 2015(2). There are several factors behind this trend, but you will notice that it was not affected as strongly by the recession. In fact, it’s after the recession that labor participation rates gradually declined from 66% to 63%. (Note that I plotted this as 60 percentage points plus the right-hand axis so it fits neatly on one graph).
Today, the labor participation rate has steadied at 63% as more people are stepping into the labor market.
So, there you have it. Fewer people out of work, fewer people looking for work, fewer people being put out of work, and more people likely to walk out on you. The picture does not look great for employers.
Gig economy? Eh, not so much …
The overall improvement of the job market prompted economists at both Princeton and Harvard to revise downwards their estimates of the size of the so-called ‘Gig Economy’. They now conclude “the gig economy had scarcely changed the U.S. labor market.”
Gigs, it turns out, were not a new way of building a career, but a make-do solution for workers who, given the choice, would jump to traditional, full-time positions. This is affecting the pattern of underemployment, and explains in part why wages on the whole have not risen as expected.
For sure, new platforms like
But gig jobs, as freelancers have long known are still outside of the main framework our economy has
For the most part people still want the same thing: a full-time secure job with regular income and good benefits. Who knew?
[Further reading from 02/15/2019: The fight for $15 (per hour) comes to the gig economy. ]
Labor’s not fungible
And unlike most markets with fungible commodities (Barrels of oil, bushels of corn…), labor markets are complicated. Workers face geographic constraints (in fact, today Americans are less work-mobile than previous generations (3)) and some skill sets are more marketable than others. While these macro trends tell us which way the wind blows, hiring truly comes down to competing in a specific market and geography.
Employers in competitive markets need to insure themselves against the challenges of attracting and retaining talent while keeping their current workforce engaged. They need to double down on creating an employee-centric culture. After all, it’s the lack of internal opportunities or unanswered frustrations that drive your current talent towards the exit. Engaged employees in Top Workplaces are significantly less likely to be considering a move elsewhere.
(1) “You’re Less Likely to Be Laid Off Today Than Any Time Since 1967” by Brad Tuttle – Money Magazine – Aug 08, 2017- http://time.com/money/4891508/unemployment-layoff-rate-jobs-market-2017/
(2) Labor force participation: what has happened since the peak? – Bureau of Labor Statistics September 2016 – https://www.bls.gov/opub/mlr/2016/article/labor-force-participation-what-has-happened-since-the-peak.htm
(3) “Fewer Americans Strike Out for New Jobs, Crimping the Recovery” by PATRICIA COHEN – New York Time – May 24, 2016 – https://www.nytimes.com/2016/05/25/business/economy/fewer-workers-choose-to-move-to-new-pastures.html
LNS11300000 – Civilian Labor participation rate
JTS00000000QUR – Quits
LNS14000000 – Unemployment rate
JTS00000000LDR – Layoffs & Discharges
https://fred.stlouisfed.org/series/FEDFUNDS – Federal Reserve rate