A tough talent market for employers hits unpredictable turbulence.
[Note on the charts in this article, you can show/hide data series by clicking on the series in the legend.]
[Data updated for June 2024, or most recent data available as of that date]
Employment is a relationship between the employee and the hiring firm. We can view it as a market, subject to the laws of supply and demand, but it has its own psychology. When employees feel like they have the upper hand in the relationship, they will seek to ‘trade up’. When the going gets tough, firms are prone to shedding workers and those lucky enough to hold on to their jobs stay put.
By tracking several key US labor data series, we can see how this dynamic plays out in practice.
Here we look at the period from 2007 to 2024 which is marked by the following events and phases:
- Pre-2008, the economy appeared to be strong. But in late 2007 systemic cracks appeared in the foundations of the banking system, resulting in a global financial crisis. The US economy entered a year-long recession.
- Over a period of one decade (2009-2019) the US economy was on a steady path of recovery. The key indices returned to pre-crisis levels.
- In late 2019, the global COVID-19 pandemic broke out, throwing the world economy into turmoil.
- The pandemic lasted until the end of the first quarter of 2022, at which point the economic indicators again (and fairly rapidly) returned to pre-pandemic levels.
Unemployment: Way down… then “Boom!”
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. After a dramatic surge during the 2008 recession, unemployment in the U.S. peaked at 10% before gradually recovering to a low of 3.6% in May 2019, well below the pre-recession levels of May 2007. (Note that I plotted the unemployment rate on the right-hand axis.)
Then COVID-19 hit and an unprecedented spike of layoffs put the unemployment levels not seen since the 1930’s.
By the end of the pandemic, unemployment had returned to it’s stable number (3.6%), although it has since crept back up to 4%.
Layoffs: Way down… then “Boom!”
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-2008-recession rate of 1.3% or 1.4%, we saw what – at the time- was called a ‘surge’ to 2% a month. By May of 2010, we were back in the 1.3% zone. Companies just weren’t firing people like they used to, and workers were feeling more confident (1).
When COVID-19 hit, we saw a tsunami of furloughs and layoffs as companies reacted swiftly to the shutdown orders. This abrupt impact makes the 2008 ‘surge’ seem quite tame. But the pandemic-induced layoffs were followed by a rapid return to close-to-normal rates, with just 1.4% of the workforce laid off in a month.
Just when quitting was back in fashion
So, what about people quitting? Before the 2008-2009 recession, 2.2% of employees in any given month would hand in their notice (not including 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 as workers started to feel more confident.
By 2019 quitters were back in fashion. Then Covid-19 hit, and the quits rate took an aggressive—but short—dip. By early 2021 the quits level hit a record monthly rate of 3%. Observers speculate this is a period when many people were rethinking their relationship with work. But this trend eventually settled down and we returned to a standard 2.2% rate by early 2024.
Here is the historical data (‘Quits’ is the teal line):
Wage growth and inflation: Watch this space
Prior to the pandemic, we were seeing slow signs of drowth in the Employer Cost Index (ECI). The ECI includes wage inflation (the increase in people’s take-home salary) as well as other employment-related costs such as employee benefits and payroll taxes imposed on the employer. This trend accelerated throughout the pandemic, with an annualized rate of 5.0 to 5.1%, meaning that employing people was becoming much more expensive. In the longer term, wage inflation will add to inflationary pressure.
If you want to see the Federal Reserve interest rate alongside the rest, it’s shown below in dark red. The Federal Reserve responded aggressively by lowering the core rate in 2008, and is using the same mechanism to respond to the pandemic.
Here is the historical interest rate, as set by the Federal Reserve (dark red):
Participation: Just as we were creeping up…
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 September 2015. 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%.
The labor participation rate had steadied at 63% as more people stepped back into the labor market. But today, driven by the pandemic, the participation rate is dropping again, and fast. 1% of the working-age population of the US is currently sitting on the sidelines as a direct result of COVID.
A Smarter Workforce
A final trend that is worth tracking: 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 36% of the population having achieved a bachelor’s degree or higher. Less than 10% of the population dropped out of education before completing high school – half of what it was a generation ago. This continues to go down 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 2008-2009 recession shown
Gig economy? Eh, not so much …
The post-recession 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’. Gigs, it turns out, were a great work arrangement for some. But in general, they are 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.
The pandemic has put the gig economy under the radar. On the one hand, gig jobs with delivery services such as Instacart, Taskrabbit, GoPuff, or Shipt are busier than ever. Other sectors like Uber or Lyft have seen a dramatic drop in demand. According to a study by AppJobs , gig workers among the hardest hit by coronavirus pandemic.
Gig jobs (as freelancers have long known) live 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 were already 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, despite the turmoil of the last few months. They need to double down on creating an employee-centric culture and maintaining community while working remotely. After all, it’s the lack of internal opportunities or unanswered frustrations that drive your current talent towards the exit. Engaged employees are significantly less likely to be considering a move elsewhere.
So, there you have it. The picture for employment in the US remains uncertain. Many economists are projecting mass layoffs as the strength of the inevitable post-covid recession is felt. Others predict a rapid return to employment as stay-at-home restrictions are lifted.
My personal projection on this is that we should expect a rapid restructuring with some sector-wide layoffs, the demise of many unprofitable or unproven businesses, and the rapid return of other sectors that investors will double down on.
(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
Data sources:
LNS11300000 – Civilian Labor participation rate
JTS00000000QUR – Quits
LNS14000000 – Unemployment rate
JTS00000000LDR – Layoffs & Discharges
https://fred.stlouisfed.org/series/FEDFUNDS – Federal Reserve rate