So Many Job Openings, Why So Few Candidates?
"Job Openings in U.S. Surge to Record While Hiring Cools" read the Bloomberg News headline following the release of the July report on Job Openings and Labor Turnover, better known as JOLTS.
If that seems like a disconnect, it is. By all rights, employers should be bidding up the price of labor to fill the 5.75 million open slots in July, a record in the 15-year history of the data series. That's not happening.
Not only is there little evidence of wage pressure, but hiring fell in July, according to the JOLTS report. The quit rate, which indicates how confident people are about leaving a job, was unchanged at 1.9 percent for the fourth consecutive month.
Can a mismatch between the skill set employers need and candidates offer explain the record number of job openings? I doubt it. Manufacturing companies often train potential employees to their job specification or team up with community colleges, paying tuition in exchange for training. If the need is there, business will find a way.
Both the high level of job openings and the current 5.1 percent unemployment rate appear to overstate the tightness of the labor market, something Federal Reserve Chairman Janet Yellen has noted. Since a job is the primary means of support for most Americans, having one - or sensing employment opportunities - is key to perceptions about the economy. And right now, about two-thirds of Americans think the U.S. economy is on the wrong track, according to an array of opinion polls. That's not a noticeable improvement from the depths of the 2007-2009 recession.
Just think back to the roaring 1990s, when the job market was booming. We were treated to stories about people induced to give up crime because work paid more; stories about signing bonuses for restaurant workers and free BMWs for hotel managers as the unemployment rate dipped to 3.8 percent. That was a tight labor market.
There are still almost 9 million Americans who are underemployed, a category that includes those working part-time for economic reasons, discouraged workers and those marginally attached to the labor force. The U-6 unemployment rate, which incorporates the underemployed, has fallen to 10.3 percent from 17.1 percent in 2010 but remains well above the previous cycle low of 7.9 percent in December 2006.
What else might explain employers' inability to fill so many positions when vast numbers of Americans are underemployed or have dropped out of the labor force entirely?
Many economists point to various disincentives to work: the unintended consequence of certain government programs. For example, the termination of extended unemployment benefits (up to 99 weeks) in December 2013 was expected to have dire consequences. Instead, the pace of employment growth increased, especially in high-benefit states, the unemployment rate declined and the labor force participation rate stabilized in 2014, according to an NBER study.
Among the economists' findings: the cut in benefits can explain nearly all of the employment growth last year; and "the negative effects of unemployment benefit extensions on employment far outweighs the potential stimulative effects often ascribed to this policy."
It seems that the government-provided cushion encourages the unemployed to stop looking for work, or wait for the perfect job to come along, instead of accepting a suitable position.
The Affordable Care Act introduced a host of other disincentives to work, the effect of which will increase once all the penalties and taxes kick in. The Congressional Budget Office acknowledged the ACA's dampening labor market effects in a special appendix to its 2014 Long-Term Budget Outlook. CBO estimates a 1.5-2 percent reduction in total hours worked from 2017 to 2024, largely a reflection of workers choosing "to supply less labor" in view of new taxes and financial benefits.
The projected reduction in hours worked reflects a 2.5 million decline in the number of full-time-equivalent workers in 2024, CBO says. In 2010, CBO estimated an 800,000 decline in labor supply.
The biggest disincentive to work in the ACA, according to CBO, are the health-care subsidies, which phase out as incomes rise. The loss of a subsidy makes working less attractive. Other provisions of the ACA, such as the employer penalty for failure to offer insurance, will have a bigger negative effect on the demand for labor.
Before you get too depressed about the labor market, consider an alternative, more upbeat explanation for the surge in job openings: the relative ease, and low cost, of posting a job ad online, according to Jim O'Sullivan, chief U.S. economist at High Frequency Economics. "Not all job openings are equal."
In other words, a job opening is not necessarily a job that must be filled immediately. But it never hurts to dip your lure in the water and see what bites.
Caroline Baum is a contributor to e21. You can follow her on Twitter here.
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