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Labor market tightness


Unemployment is high during a recession, and job vacancies are numerous during an economic boom. That should surprise no one. This is why these two measures are useful in determining the state of an economy throughout its business cycle. One way to do this is to look at labor market tightness, defined as the ratio of vacancies to unemployment, which we show above. One should realize, though, that while the number of unemployed is reasonably well estimated from surveys, the number of vacancies is estimated with much less confidence. Indeed, at least in the U.S., it is not mandatory to post openings at an employment agency. In fact, some statistical agencies used to measure the square footage of job ads in newspapers, which obviously isn’t possible now that jobs are advertised in many different media and likely multiple times. In the U.S., a survey across businesses about their openings has been conducted only since 2000.

How this graph was created: Search for “job vacancies” and select the monthly seasonally adjusted series for the U.S. Then add the series “unemployment level,” making sure to check “Modify existing series 1.” Finally, create your own data transformation with the formula a/b/1000.

Suggested by Christian Zimmermann

View on FRED, series used in this post: LMJVTTUVUSM647S, UNEMPLOY


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