The Job Openings and Labor Turnover Survey released by the Labor Department on Wednesday strongly suggests that American workers are enjoying a moment when work is plentiful and firms appear willing to meet demand for higher wages.
Through May, there is roughly one unemployed person per job opening as the reservation wage, or the minimum that workers are willing to accept to return to work, has increased on the back of policy support, lack of access to affordable child care and the traditional issues associated with the long summer school holiday.
But that bargaining power will dim as those who are officially unemployed and those who have been out of the workforce return.
We think that the success of the vaccination program, the improving labor market in the first five months of the year and the dimming of that reservation wage all point to a lower unemployment rate in the months ahead.
(Note that the JOLTS data lags other labor statistics by a month and does not yet take into account the increase in job creation in June.)
There were more than 9.3 million job openings in May, a 38% increase over the 6.8 million reported in December 2020. And there were 4 million people who quit jobs in May, a 16% increase over the 3.4 million in December.
The rapid increase in job openings over the past five months signals the reopening of the economy, while the increase in quits signals the opportunity for advancement and higher wages.
As our analysis shows, job openings have returned to levels from before the trade war and pandemic, while quits have returned to their pre-pandemic trend.
There were 5.9 million hires during May, a 10% increase over the 5.4 million hires in December. Business layoffs continued to decline as well, dropping to 1.4 million in May, 21% less than the 1.8 million layoffs in December.
The increase in hires and the decline in layoffs suggest an expansion of the labor market, with employers hiring to meet the increase in economic activity.
Much will be made that the number of job openings roughly equals the 9.48 million unemployed members of the labor force. There will most likely be calls for the monetary authorities to reverse their accommodative stance and to instead fight the looming threats of inflation. And there will most likely be calls for rethinking the fiscal stimulus proposals working their way through Congress.
But experience suggests that you can’t make too much out of one number. For instance, the Federal Reserve looks at a “real” unemployment rate that we estimate as 9.5% in addition to the headline 5.9% U3 labor force unemployment rate.
By including the number of people who are technically out of the labor force but who want a job, the number of unemployed increases from 9.48 million to 15.9 million.
That suggests work still to be done to erase a far greater jobs deficit. We anticipate that beginning to happen over the course of the summer as the economy reopens, and then accelerating in the fall as children return to school and parents can rejoin the labor force.
But the remaining deficit implies the necessity of government intervention in the financial markets and the real economy.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
