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Job Openings

A closer look at a hot labor market

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In this economic analysis, we use the Job Openings and Labor Turnover Survey (JOLTS) data from the Bureau of Labor Statistics (BLS) to determine the degree to which firms that are looking to hire a significant number of workers can expand employment (a “hot” labor market) or cannot (a “tight” labor market). We provide evidence that the job openings-to-hires and job opening-to-net hires ratios are worthwhile additions to the list of indicators that assess the state of the labor market.

In this analysis we find that most industries are in a “high need” state: the job openings-to-hires ratio hit a historic high in April 2020 and remains elevated in almost every industry. But, we see some evidence that job openings tend to move more than hires, such that an increase in hires is associated with a proportionally large increase in job openings. Moreover, the relationship between job openings and net hires (a better measure of firms’ expansion of their payrolls because it accounts for separations) signals a greater payroll expansion per opening than prior to the pandemic. We show below that the very high rate of job openings is evidence that firms desire to expand payrolls significantly and that firms in aggregate can meet their hiring needs, even if additional (yet proportional) effort is needed.

This analysis suggests that a high job opening-to-unemployment rate ratio overstates how hard it is for firms to hire, i.e. how tight the labor market is. An unusually large fraction of hiring is coming from people who reported they were out- side the labor force (meaning that they were not unemployed and actively seeking work). To be sure, the pace of hiring is very high, unsustainable, and is pushing up wages and inflation. Nonetheless, if it is the case that firms have been able to meet their needs by hiring from a more expansive pool than just the unemployed—including those with jobs and those who are out of the labor force—then perhaps as the labor market returns to a more sustainable pace, more of the adjustment occurs by a drop in job-taking from those people and the unemployment rate does not need to rise as much as some have said in order to settle at a sustainable level.

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