In the most recent FOMC press conference, on June 12, Chair Powell noted that the labor market “has come into better balance, with continued strong job gains and a low unemployment rate.”
One measure of labor market tightness that illustrates this is the job openings-to-unemployment ratio, shown in the FRED graph above. The ratio is taken by dividing the total number of job openings (from the BLS’s Job Openings and Labor Turnover Survey) by the total number of unemployed persons. The result is a statistic of the number of job openings for every unemployed person. This roughly reflects how high employers’ demand is for additional workers relative to the pool of people actively seeking work.
The ratio has clearly come down from its March 2022 peak of 2 job openings per unemployed person. At that time, employers were pining for workers as pent-up consumer demand strained supply chains and contributed to higher prices. But now the ratio is the same as its 2019 average of 1.2. This normalization is partly a result of vacancies being filled by new workers entering the labor force. It is also partly a result of vacancies being eliminated by employers before they’re filled, given the pressure from high borrowing costs and slowing consumer demand.
A few points are also worth noting.
First: Although the ratio of openings to unemployment is the same as in 2019, the ratio’s composition is different. As of May 2024, the number of job openings is higher than its 2019 average—and not only because of population growth. When adjusted for the total demand for workers, there are still more job openings available as shown by the job openings rate.
The current unemployment level is also higher than its 2019 average but so is the unemployment rate. The net effects of relatively more job openings and relatively more unemployed persons essentially cancel each other out, causing the ratio to be the same as it was in 2019.
Second: Based on this measure, labor markets are still tight, much like they were in 2019—a year many economists consider to have been abnormally “hot.” In the 10 years prior, steady payroll growth had cut the unemployment rate to a historic low of 3.7% and job openings almost tripled. Together, these changes lifted the 2019 ratio much higher than the ratio immediately after the 2008 recession or at any other point in the history of the data series. While the unemployment level is now slightly higher than it was several years ago, the recent labor market hasn’t been weak by any historical comparison.
More to consider: The openings-to-unemployment ratio has fallen substantially since January of this year, and job prospects for the unemployed could be reduced further as the economy continues to normalize. This is already playing out as suggested by data on job postings from Indeed.com, which are more recent than the available JOLTS data. (Read more about comparing JOLTS and Indeed data in FRED Blog posts from August and November.)
Also, the labor force may not be able to sustain the growth it has exhibited over the post-pandemic recovery. In fact, it seems to have stalled in recent months. So, as long as employer demand for workers continues to be strong, slowing labor force growth could reduce the competition that job seekers face. If so, the openings-to-unemployment ratio may begin to stabilize around its current level.
How this graph was created: In FRED, search for and select “Job Openings: Total Nonfarm.” From the “Edit Graph” panel, use the “Customize Data” section in the “Edit Line 1” tab to search and select “Unemployment Level.” You should see two series on the “Edit Line 1” tab listed as (a) and (b). In the “Customize Data” section, enter and apply a/b in the formula bar.
Suggested by Charles Gascon and Joseph Martorana.
