What is the Weirdness of the Job Openings Data Telling Us?

Job openings were sky-high in late 2022, and while the level has come down since then, they remain high compared to the previous 20 years.

But why should job openings have skyrocketed after the pandemic recession? And what is it telling us?

Here’s the basic data, from the ever-useful FRED website run by the Federal Reserve Bank of St. Louis. The blue line shows job openings as a percentage of the total existing labor force; the red line (to which I will return) shows rates at which workers are quitting their jobs (that is, voluntarily leaving) as a percentage of the labor force. The data is from the monthly Job Openings and Labor Turnover Survey conducted by the US Bureau of Labor Statistics.

Simon Mongey and Jeff Horwich of the Minneapolis Fed discuss these patterns in “Are job vacancies still as plentiful as they appear? Implications for the ‘soft landing,’” subtitled “Data on U.S. job openings have become untethered from other indicators, complicating labor market outlook” (December 1, 2023).

Mongey and Horwich suggest that the sharp rise in job openings (which they sometimes refer to as “job vacancies” after the pandemic represented employers who were, with the worst of the pandemic in the rear-view mirror, trying to rebuild their companies. However, with a low unemployment rate, hiring workers was proving difficult. Thus, the more recent decline in job openings represents employers who have given up on hiring as many people, and moved to other business strategies.

However, the authors also point out that the job openings rate has moved in a way not reflected by statistics on job turnover. The graph above shows that while the share of people quitting jobs does rise in 2022 (a phenomenon sometimes labelled, with a whiff of exaggeration, as the “Great Resignation”), the rise isn’t nearly as sharp as the rise in job openings. So why are job openings so high? Here’s one possibility they suggest:

We do not take a stand here on what has caused this shift in the vacancy data. One trend to consider, however, is that digital technologies have dramatically changed the cost to employers of job posting, recruiting, and evaluating candidates. These changes, over time, might have contributed to a steady increase in measured vacancies.

In other words, it’s become much easier and cheaper for employers to list job vacancies and to do a first cut at the responses that come in. The employer might then either proceed with hiring someone–or wait.

The authors offer a back-of-the-envelope calculation of this rise in the job openings rate: basically, they look at how other labor market factors were correlated with the job openings rate before the pandemic, and then estimate based on those factors what the job openings rate would have been if those earlier correlations had continued unchanged. This “adjusted” rate for the job openings rate is considerably lower. Thus, the authors argue that employment prospects are not as good as the elevated job openings rate might suggest. Moreover, they point out that unemployment rates have been creeping up (“unemployment has ticked up modestly from 3.4 percent in April to 3.9 percent in October”), and they suggest that additional decline in the job openings rate might be accompanied by unemployment rising higher.