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A review of labor market conditions

The U.S. unemployment rate stands at 4.3 percent, a value slightly lower than at the peak of the expansion in 2007. This is a sign of a very healthy labor market. The question is to what extent do other indicators of labor market health paint a similar picture.

FRED has recently added several data series that capture various measures of labor market tightness. A very tight labor market means that employers have a harder time filling open positions because most workers are employed and fewer are looking for jobs. There are several ways to capture labor market tightness: In the following graphs, we present a few of them and compare their evolution before and after the previous recession.

The first graph shows the vacancy-to-unemployment ratio and the quits rate. The blue line (left axis) is the number of vacancies per unemployed worker. When the economy enters recession, this measure declines as the number of unemployed workers increases and the vacancies per unemployed worker decrease. A low number of vacancies per unemployed worker is a sign of slack in the labor market. After the 2007-09 recession, this ratio increased at a slow pace until 2014, when it increased sharply and surpassed its pre-recession high. The red line (right axis) is the number of quits per employed worker. Similar to the vacancy ratio, this indicator declines in recessionary periods. Within the past few months the quit rate has recovered to pre-recession levels.

The second graph shows the mean level of vacancy duration and an index of recruiting intensity per vacancy. In a tight labor market, employers will have to look harder, or more intensely, to fill open positions as the number of unemployed candidates is reduced. Similarly, vacancy durations will be higher as recruiting efforts take longer in a tight labor market. Since the 2007-09 recession, vacancy durations have surpassed pre-recession levels, reaching a series high of 29.6 business days per vacancy in April 2016. The recruiting intensity index is close to its pre-recession level, but has not increased as quickly as vacancy durations.

Overall, the different indicators of labor market conditions analyzed here point to a healthy recovery of the U.S. labor market.

How these graphs were created: Top graph: Search for “Vacancy to Unemployment Ratio” in FRED and graph the series with the copyright symbol in the title (copyrighted by DHI Group Inc. and Dr. Steven J. Davis). Then click the orange “Edit Graph” button and add a line using the middle button on the top of the menu that appears to the right. Search for “Quits Rate” in the box and add the series with the copyright symbol. Finally, click the “Format” button on the menu and below Line 2 select the option to change the y-axis position to the right. Bottom graph: Repeat these steps, but use DHI-DFH Mean Vacancy Duration and DHI-DFH Index of Recruiting Intensity per Vacancy.

Suggested by Maximiliano Dvorkin and Hannah Shell.


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