• aiseoneil

Don't Be JOLTed by Job Openings

The Job Opening and Labor Turnover Survey (JOLTS) for April was published yesterday. It shows job openings, graphed below, at an all time high:

Many people are worried, among them MSNBC’s Steve Rattner and Morning Joe Scarborough, as well as CNBC’s Rick Santelli.

Why? The fear of high job openings is that it indicates that demand is stronger than supply - in the labor market specifically - which will drive up prices: wages will rise, increasing production costs.

I’ll make the case that high job openings does not mean we have to worry about rising inflation.

First, the process of employer-employee matching is rather inefficient, often requiring family or social connection, word-to-mouth or someone happening across a “help wanted” sign. Seen that way, the high level of job availability may be a temporary result of post-pandemic reopening. As unemployed people and hiring employers take time to match up, we could see a few months of elevated unemployment and elevated job availability.

Second, job openings when put in relative terms do not seem especially high. For instance, the ratio of job openings over the unemployment level has not yet recovered to the pre-Covid level, as the chart below shows:

However, if we remove from the denominator those who have been unemployed for at least 27 weeks on the assumption they’re less likely to go back to work right away, we find this new ratio has fully recovered to its pre-crisis level and grown more:

While this is somewhat of an indication that inflation is more of a threat than before Covid, we should keep in mind that it’s not much higher than late 2019, which was a period where inflation was basically under control.

Meanwhile, if we take the largest possible measure of unemployment including the marginally attached and the underemployment, we can construct a ratio which has still failed to recover to the pre-Covid levels:

Overall, the job openings, when put in relative terms, do not actually indicate inflationary concerns through their level.

The job openings would be concerning if we were just looking at the pace of growth of job openings out of context. However, given the context of stimulus measures about to expire and the dynamics inherent in the reopening economy, we can reasonably assume that the pace of relative job openings will slow or even turn negative in the near future.

Finally, while measures of unemployment - another way to view the labor market - are generally declining, they aren’t declining especially quickly, and are high enough to make us unconcerned - at least for now - about inflation.

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