AMERICA’S LATEST jobs reports landed with resounding thuds. Upbeat Wall Street forecasters had expected firms to add 1m new jobs in April. Employers made them look foolish, taking on just under 300,000 new workers instead. Punters lowered their expectations for May but still wound up disappointed, when on June 4th the Bureau of Labour Statistics reported net employment growth of just 559,000: a decent showing in normal times, but unsatisfying when millions remain out of work. Underwhelming job gains look increasingly mysterious given firms’ desperation to hire. With roughly one job vacancy available for every person out of work, you would think that America’s labour-market problems could be solved soon enough. But a leisurely pace of jobs growth does not necessarily indicate that the economic recovery has gone wrong. A deeper dive into the figures suggests that it could simply reflect the difficulties of matching millions of workers with jobs at a time of unprecedented economic flux.
On the surface, the American jobs market does appear to be behaving oddly. The economy is unquestionably booming. Real output rose at an annualised pace of 6.4% in the first quarter of 2021 and is projected to have grown at an annualised clip of nearly 10% in the second. Firms are keen to hire. The 9.3m job openings posted in April were easily the most on record. Employers—some, at least—are attempting to lure workers with generous pay. Though overall wage growth remains subdued, rates of pay for newly hired workers are soaring in the service-sector occupations that are suffering most from labour shortages. In the first quarter of this year, the real wage for new hires in such positions (say, in restaurants or hair salons) stood about 8% above the level you might have expected them to earn before the pandemic, according to a recent analysis by Julie Hotchkiss of the Federal Reserve Bank of Atlanta. And faster job gains are certainly within the realms of possibility: employment rose by nearly 5m in June 2020, and by nearly 11m over a four-month stretch in the middle of last year.
Look closely, though, and the picture becomes both less mysterious and more complicated. Last year’s rapid rebound reflected the unique nature of the pandemic recession. Employers shed a staggering 22m jobs in March and April 2020, but about 80% of the unemployed at that time were temporarily laid off, with a job to which they expected to be recalled once lockdowns eased. (During the Great Recession, by contrast, temporary lay-offs never accounted for more than 15% of all unemployment.) When firms began to reopen, the temporarily unemployed could immediately resume work; their ranks have plunged by 16m since April last year, or by about 90%, contributing to a staggering decline in the jobless rate of about nine percentage points. But there are ever fewer temporarily laid-off workers waiting to be brought back (see chart, left panel). Meanwhile, workers who have permanently lost their jobs, who made up just 9% of the unemployed early in the pandemic, now represent about a third of all those out of work.
This shift in the composition of unemployment probably means that joblessness cannot fall as quickly as it did last year. The rise in unemployment in a recession is often much more rapid than the speed with which it goes on to fall during the recovery. This asymmetry stems in part from the fact that the creation of a new job (as opposed to the resumption of an old one) involves time-consuming matchmaking, as worker and firm try to find each other. Congestion among the unemployed can slow this process. Recent work by Niklas Engbom of New York University documents that an unemployed person applies for more than ten times as many jobs each month as an employed worker, but is nonetheless less than half as likely, per application, to start a new job. So though there may be a vacancy open for each jobless worker today, employers bombarded with applications must take time to find a candidate they like, delaying the moment at which the opening is filled (or lengthening the time taken to fill the job, if the chosen applicant in the meantime accepts another offer).
Churn, churn, churn
In addition, note Robert Hall of Stanford University and Marianna Kudlyak of the Federal Reserve Bank of San Francisco, the road from unemployment to a permanent job match may include more than one round of searching. Workers seeking employment often cycle through short-term jobs before finding a long-term match, which helps explain why the pace at which individual unemployed jobseekers find work is faster than that at which aggregate unemployment returns to normal.
Though tepid headline jobs figures seem a cause for worry, there is plenty of healthy churn taking place behind the scenes, as another survey indicates. Over the first five months of 2021 an average of 2.4m workers have moved from unemployment to employment each month. Joblessness has not fallen by more over this period only because some workers have moved in the other direction, while others are newly classified as unemployed after rejoining the labour force. Though net employment growth might not show it, hiring is robust. In April employers took on more than 6m workers—the most on record, barring the period of reopening last summer. In the same month 5.8m workers left jobs, including 4m who chose to depart voluntarily (see chart, right panel). The increasing number of people quitting their jobs suggests that workers are using a moment of high labour demand and generous wage offers to find better opportunities. This adds to the strain on human-resources departments in the short run, further preventing jobless Americans from rushing back to work. But it is also a sign of confidence in the economic recovery.
A prolonged period of elevated involuntary unemployment undoubtedly carries risks. But sub-million monthly payroll reports are not for the moment cause for much worry. America remains on track to eliminate remaining pandemic unemployment within two years. And in the meantime, the churning of workers into new, different jobs could leave the economy more productive than before, and better equipped for a post-pandemic world. ■
This article appeared in the Finance & economics section of the print edition under the headline “Finding the perfect match”