PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Labor Market Update: Opportunities and Challenges

By at 7 July, 2021, 3:42 pm

by RAYMOND J. KEATING –

The latest “Job Openings and Labor Turnover” report from the U.S. Bureau of Labor Statistics showed little change in both job openings and hires in May 2021 compared to April 2021. But a look over the past near-year-and-a-half makes clear the very tight labor market that U.S. businesses are now confronting.

Job Openings Hit Record High

As for job openings, they actually hit a record high at 9.2 million in May 2021, in a dataset going back to 2001.

The number of job openings passed the pre-pandemic level in February of this year, and then passed the previous high in March, and has continued higher subsequently. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

Meanwhile, the number of hires also remained basically unchanged in May 2021 versus the previous month – moving down slightly from 6.012 million in April 2021 to 5.927 million in May.

Source: Federal Reserve Bank of St. Louis, FRED

The disparity between openings and hires drives provides more evidence that U.S. businesses are facing a tight labor market.

Quits Remain High

Finally, let’s consider the number of quits and the quits rate. Quits are considered an indicator of confidence among workers in terms of the labor market, or where the labor market is headed.

While the number of quits actually dropped in May 2021 – from a record 4 million in April 2021 to 3.6 million in May. That May 2021 level is still high, and matches the pre-pandemic level. The quits rate (i.e., the numbers of employees who left voluntarily with the exception of retirements or transfers to other locations as a share of total employment) – has been running at or near record highs over the past four months. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

Long-Run Indicators Healthy, But U.S. Economy Needs Workers

All in all, these are healthy long-run indicators regarding the recovery, specifically, that businesses have job openings and workers are confident, while also pointing to labor market challenges. However, the overall employment level remains far too low, with the employment-population ratio at 58 percent in June 2021 versus 61.2 percent pre-pandemic. The same problem is seen in the labor force participation rate, which registered 61.6 percent in June 2021 versus 63.4 percent pre-pandemic.

Clearly, the U.S. needs workers. That is the case now, and given the aging of the population, will be a challenge over the long run. That means getting people back into the labor force, as well as reforming immigration to be more welcoming to people looking to come here and work.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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