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Home Publications Blogs Beat the Press Is Uncertainty Delaying Hiring or Is This Just Another Make Work Project for People Who Write About the Economy?

Is Uncertainty Delaying Hiring or Is This Just Another Make Work Project for People Who Write About the Economy?

Tuesday, 17 June 2014 05:51

For some of us the story of the downturn and the slow recovery is pretty damn simple. The collapse of a huge housing bubble created a big gap in demand that is not easily filled. (Name your favorite demand-filling candidates. You have consumption, non-residential investment, residential investment, government spending, and net exports -- that's all folks.) Since there was no plausible story whereby the economy could quickly fill this demand gap, continuing slow growth and high unemployment is not much of a surprise.

But no one wants to make our leading economists and policy makers look silly, so there is a considerable premium placed on efforts to make the simple story complicated. For example last week we had a discussion in the NYT raising the possibility that the economy's real problem is a skills shortage. Today, Catherine Rampell raises the troubling concern that job openings are up, but hiring isn't. Her conclusion is that firms are reluctant to actually go ahead and hire because of uncertainty about the future. She then lists causes of uncertainty which are supposed to be the cause for the delay. 

Before anyone gets too concerned about the bad effects of uncertainty on the economy, let's look at the data a bit more closely. We get our data on job openings from the Job Openings and Labor Turnover Survey (JOLTS). If we look at the most recent release and go over to the right two sets of columns we find "total separations." These are the workers who leave their jobs by quitting, layoffs, or firing. The survey shows that this number was roughly 4.5 million in the most recent month.

This is important because it means that over a six-month span we would anticipate that roughly 27 million workers will leave their job. That's a bit less than 20 percent of total employment.(The actual share will be somewhat less since some jobs will come open more than once.) This is noteworthy because it would suggest that most firms need not be too troubled about uncertainty in making a hire today since they are likely to see a substantial portion of their workforce leave in the near future in any case. In other words, if they hire someone who it turns out they didn't really need, odds are that someone will leave in the near future so they will need this worker.

This is especially true in sectors like retail and restaurant employment which have a disproportionate share of the job openings. The turnover rate in retail is 4.8 percent, which means that close to 30 percent of jobs will come open in the next six month. In restaurants the turnover rate is 5.4 percent, meaning close to one-third of the jobs will come open in the next six months. This suggests that an employer is not taking much of a risk by hiring in this time of uncertainty.


The other problem with the uncertainty story is that it implies that employers are using other ways than hiring to meet the demand for labor they are seeing. But the data won't support that part of the story either. If it were true then we would be seeing more hours per worker, we aren't. The length of the average workweek in the most recent data was 34.5 hours, the same as it was in May of 2013, before we had so many job openings. In the job opening intensive retail sector the length of the average workweek has actually declined from 31.6 to 31.2 hours over the last year, although it has risen by 0.1 hour (from 26.0 to 26.1) in the leisure and hospitality sector that includes restaurants.

In any case, there is zero evidence that employers are working their existing workforce more as an alternative to hiring. Also, productivity growth has been especially weak over the last year (the first quarter numbers were negative, but that was an anomaly resulting from bad weather), so there is no evidence that employers are forcing workers to work harder as an alternative to hiring. In short, there is no reason to think that uncertainty is causing firms to look to alternatives to new hires as a way to fill labor demand. It seems that employers are doing as much hiring as we would expect given the demand for labor they are seeing.

Then why are they listing job openings? Listing is cheap. In a weak labor market there are more potential good hires out there than would be the case in a strong labor market. This means that there is likely to be a greater return to having a greater search effort. In a strong economy and strong labor market an employer might face a substantial cost for delaying a hire, since they need to fill a position and their business will suffer from having a vacancy sit open. Furthermore, there is little likelihood that if they let an acceptable worker get away that the employer will find a better worker later.

On the other hand, in today's weak economy there is little consequence from delaying a hire and it is reasonable to believe that better workers can be found by waiting. In that context, an increase in the ratio of job openings to hiring is very plausible. 

So the long and short is that the story of the downturn can be boiled down to three simple words, demand, demand, and demand. The more complicated stories are just make work projects for economists and their friends.


Comments (7)Add Comment
How to Eliminate Uncertainty and Get a Job: Create Your Own Demand
written by Last Mover, June 17, 2014 9:01

Ok, so like there's a high turnover rate that acts as a reservois of quitters to ward off the risk of having too many workers. So it's not risky to hire more workers but they still don't.

And like if employers are really uncertain they would just work current workers more hours than hire more workers, either of whom may not quit soon enough if they hired both. But they don't do that either.

And so like if employers run ads because search costs are so cheap and they don't really need employees other than the occasional stem gem stumbled across in such trolling for those desperate enough to undersell their uneeded skills in times of structural unemployment ... then they do do that don't they.

See America. The demand is there. You just have to look for it. And inspire your prospective employer with confidence to overcome the uncertainty.

In fact, to really show your stuff, prove it to your employer that supply really does create its own demand. Sign a contract that requires you will spend your entire income on what you produce, guaranteed to eliminate all uncertainty and get the job.
written by skeptonomist, June 17, 2014 10:05
Yes, demand is what drives most business decisions, especially small businesses. What they look at is current sales and if they are not going up, they will not expand. When business is slow - as it is now - employers can afford to take their time about filling jobs and to be picky. When sales are high and the business is expanding, employers don't like to let production or services lag, so they take whatever they can get. Rampell actually gives this explanation and rejects the "skills" hypothesis.

But economists insist on complicating the picture, bringing in things that actually do not affect businesses decisions much. For example, Dean Baker and Paul Krugman keep claiming that employers are very concerned about inflation rates and what the Fed will do about them, and what real interest rates are. Apparently if real interest rates were really, really low employers would forget about the poor sales rate and go wild, hiring and expanding based on their faith in Say’s law (or something). This is a fantasy - as Dean himself says, what is important is “demand, demand, and demand”.
written by djb, June 17, 2014 10:14

and of course who is always blamed for causing this "uncertainty"

liberals who want social programs

these social programs of course will bankrupt our society

Run out the clock
written by jbakho, June 17, 2014 11:07
The solutions to increasing demand are simple: BigG spends more on _____(you pick).
The Malefactors of Great Wealth and their shills don't like this answer. If people understood that more BigG stimulus would be good for them, there would be intense political pressure on BigG to act. Enter a disinformation campaign.

To derail action on a popular cause first try distraction. If the popular cause can't be disscussed because the conversation has been hijacked by distraction, the Malefactors Win.

News is always looking for something new (News) and are easily distracted. Republishing the same contact does not keep reader's interest. The Malefactors are playing this game and distracting the conversation. It isn't a game to protect reputations, it is a game to oppose popular policy.

Who is talking: Incompotence? or Malefactor Greedy Self Interstest. I say, "Follow the Money".
Wait a minute ...
written by John Puma, June 17, 2014 11:48
how can something as natural, chronic and unavoidable as "uncertainty" possibly effect our tough, bright, aggressive pillars of capitalism and freedom itself?

I love the excuses these half-wits come up with to wildly miss their own mission statements to create their and the country's future. Instead they sit whining in the corner soiling themselves.
written by Vedicculture, June 17, 2014 4:39
hiring has been booming this year. If you demographically adjusted to Carter and Reagan's time, it would be like 350,000 jobs a month.

what a lagging post.
Contract workers?
written by s ken brown, June 18, 2014 1:28
I work at a manufacturer with about 2500 workers. At and increasing rate over the past decade, they have been using contracted workers from someone like Aerotek. We are up to about a third of the 2500 work for the contract house. Turnover is relatively high at about 100% annually for production workers and about half that in the office. Other local businesses of our ilk do the same thing. Is ths correctly accounted for in the reporting or doesn't it make a difference?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.