The Department of Labor released its monthly Job Openings and Labor Turnover Survey, also known as JOLTS, on Tuesday. The JOLTS has what you might call a cult following among economists, and Federal Reserve Chair Janet Yellen has said she follows two of the statistics in the survey closely. Those would be the rate at which people are quitting their jobs and the rate at which businesses are hiring new people – in other words, the rate of turnover in the economy.
This month, though, the JOLTS was a little boring. The hiring rate and the quits rate were basically unchanged and remained frustratingly low. (The quits rate fell to 1.7 percent.) Firms aren’t optimistic enough about their prospects to bring on more people, and the employed aren’t confident that they’ll be able to find other work if they leave the job they hold. No surprises there, and no good news either.
So most people will probably not pay much attention to this month’s survey. Yet for those who really live and breathe JOLTS, for true adherents who are genuinely committed to the JOLTS lifestyle in all things, there are a few interesting things to say about it.
The most recent data support the pessimistic and somewhat depressing thesis of former Wonkblogger Evan Soltas. He’s argued that the rate of quits, as low as it is, is actually too high: that people with jobs should be more afraid to quit than they are. There are a lot of people who have been out of work for so long that they’ve given up looking, which should make people lucky enough to have jobs hesitate before leaving them. In theory, they’ll have to compete with that large group of discouraged workers to find a new position. Yet the data show that the discouraged are really not competing with the employed, Soltas argues. He shows that the quits rate is consistent with historical measurements, even though the financial crisis has altered the workforce by removing so many people from the labor market.
Let’s pause for a moment to appreciate what a dark vision of the economy this is (which, by the way, does not make it any less persuasive). If you have been out of work for more than a few months, according to this theory, you might as well have joined a manned mission to Mars. You’re not finding another job on this planet, anyway. You’ve lost touch with your professional associates, so you don’t know where the opportunities are. They, meanwhile, have given up on you, and they won’t bother passing along information about vacancies when they receive it. If you’re older, you retired early, giving up on the last years of your career. If you’re younger, perhaps you’ve moved your family out to west Texas and bought a mobile home. In any case, you’re no longer in competition with employed people for work, and that’s why the quits rate has remained in line with historical figures. You have become macroeconomically irrelevant.
Now, perhaps you’re better off than you would be if you were working, but it’s more likely that you are missing out on several years of rewarding and remunerative participation in economic life. Worse, it’s not just you that’s suffering. The national productive capacity as a whole is reduced because instead of working, you’re sitting at home ranting in the comments sections of economics blogs. Unemployment has transformed from cyclical feature of the economy, a consequence of the crisis that will pass in time, into a structural problem, that is, one that isn’t going away anytime soon.
Now, when firms want to hire, they are more likely to choose someone who already has a position, which means they will start competing for workers. They’ll begin offering higher wages, leading ultimately to accelerated inflation. All of this is more or less inarguable fact. But what should we do about it?
Some, like Matt Boesler and Joe Weisenthal of Business Insider, have suggested that the Fed will be forced to raise interest rates soon to prevent rising prices. They suggest that if the Fed maintains its interest rate near zero, where it’s been for the past several years, the central bank won’t succeed in bringing discouraged workers back into the workforce, because of the inefficiencies in the labor market that Soltas notes. Inflation is all that will come of continued low rates, on this view.
Or actually, to be precise: The level of inflation required to restore the diminished work force would just be too high. The difference is an important one. After all, there haven’t been any manned missions to Mars. If firms keep having to pay their employees more and more, then at some point they’ll start making an effort to recruit workers who have left the market. If wages increase steadily, then eventually some of the discouraged will start to think about getting in the game. That’s what happened during the boom years at the end of the Clinton administration. As Jos. A. Bank taught us this week, everyone has a price. Perhaps the labor market is so inefficient that that price is unacceptably high.
But we don’t know. (There are a lot of things we don’t know about labor markets.) And what would it mean for inflation to be unacceptably high, anyway? Yes, inflation can lead to inefficient decision-making and a loss of international competitiveness. On the other hand, inflation could also lead to:
Meanwhile, 3.8 million people in this country have been out of work for six months or longer. That’s a massive amount of accumulated misery, of stress and anxiety and feelings of worthlessness. Low rates are worth the gamble. Given the evidence, concluding otherwise just seems callous. Click below for further analysis.