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A Tale of Two Recessions Part 1
Economist George Foster discusses hires and quits of 2001 & 2007-2009 recessions and recoveries
Part 1 Quits
Quits and Hires during the 2001 and 2007-2009 Recessions
One of the more interesting data series published by the US Department of Labor, Bureau of Labor Statistics (BLS) is the Job Openings and Labor Turnover data series or JOLTS. Data from JOLTS produces some very useful data for gauging the dynamics and economic wellbeing of the national and regional economies. These are: job openings, hires and total separations. Separations include quits, layoffs/discharges and other separations. The BLS also publishes rates for all these JOLTS measures (for example, the number of quits per 100 jobs). This two part study looks only at the rates for quits and hires1. These measures will be compared to the annual percent changes (measured each month) in the total number of jobs from the Current Employment Statistics program. Using this measure will provide an idea of how the jobs numbers change through time, through two recessions and one full recovery cycle. Part 2 is an analysis of hiring since 2001 as measured by the hires rate (the number of hires per 100 jobs). Quits were selected for Part 1 because this turnover measure reveals the fluidity of the labor market as viewed by jobseekers/workers. Can I afford to quit now and move to a better job? Quits also reveal how much situational awareness jobseekers have about the economy and their market options. A very detailed study of JOLTS data was published by Klemmer and Lazaneo in the BLS Monthly Labor Review, August 2010 covering the immediate post-recession timeframe.
Quits Rates and the Recessions
The last two recessions (March 2001-November 2001, and December 2007-June 2009) showed very different worker/employer behaviors for the rate of quits and the rate of hires from JOLTS data. Quits and quits rates are higher during economic expansions as workers perceive that they can leave their current jobs and easily find better matches for their skills elsewhere in the job market (hopefully at higher wage rates). Lower quits rates indicate worker reluctance to quit their jobs for other opportunities in the labor market. The highest quits rates in this study (2.5) were in January and February 2001, before the two recessions started. Quits rates during the previous economic expansion (December 2001-November 2007) were as high as 2.3 but never exceeded 2.5 quits per 100 jobs. This analysis will show that the quits rate data is a very sensitive indicator and tells much about worker perceptions and market behaviors as the economy goes through its cyclical changes.
The 2001 Recession
Quits rates and the annual percent change in the number of jobs followed a roughly similar pattern (both up, both down) throughout the 2001 recession and recovery, but the two patterns did not match perfectly especially in timing. Jobs growth for the 2001 recession and subsequent recovery reached a low point in February-March 2002 (-1.6 percent) while the quits rate reached its nadir in April-August of 2003 (1.8 per 100 jobs) a considerable lag of over 12 months. The rate of quits followed a jagged course upward through the expansion period. Workers in the 2001 recession and later recovery cycle seemed to always be (literally) behind the curve in their pattern of quitting their jobs. This is notable compared to the tighter worker response to the 2007-2009 recession when comparing quits rates to rates of job growth and decline.
In many ways the post-2001 recovery, at least in the early stages, mirrored the sluggish jobless recovery we are now experiencing, although the late 2002-2003 recovery phase was of shorter duration. In January to October of 2003 annual job growth was less than sluggish, declining at around -0.3 percent, while the quits rate settled in at around 1.9 to 1.8 quits per 100 jobs. Quits rates have a tendency to stabilize at certain phases of the business cycle, until something changes worker perceptions and behavior.
Recovery from the 2001 Recession
The recovery from the 2001 recession picked up speed after the weak start and the annual job growth rate was actually positive in December 2003. The quits rate edged up slightly in the next few months, reflecting the growth in job opportunities and more market fluidity. Workers were now more in sync with the new and more positive realities of the job market. The job growth rate for the recovery peaked in March 2006 at 2.2 percent and the quits rate remained above 2.0 percent for 16 consecutive months May 2006-August 2007. This seemed to be the background rate of quits during the latter days of the last expansion.
Quits in the Great Recession
What happened next indicated that workers were very well aware of the rapidly deteriorating job market, and the plummeting of the quits rate seemed to match the continued declines in the jobs growth rate. In fits and starts, the quits rate started to decline in early 2008, by this time the national economy was officially in recession. Annual job growth in this period (early 2008) remained barely positive and started to decelerate rapidly by the fall of 2008. By December 2008 the nation’s employers were shedding jobs at an annual rate of -2.6 percent and the quits rate had fallen to 1.6 per 100 jobs. At the trough of job creation (worst in job declines) in July and August of 2009 (- 5.0 percent) the quits rate stood at 1.3 percent. This level seems to represent the background rate during the depths of the recession. Changes in the annual rate of job declines and declines in the quits rate tracked very well, an indication that workers were in sync with the dreary labor market conditions.
Quits and the Recovery
Quits, as a behavioral measure, mirrored many numbers published during the recovery (like consumer confidence) and reflected workers perception that it was not a good time to change jobs. Currently, the quits rate seems stuck in the 1.6 to 1.5 per 100 range, barely above the 1.3 figure from the depths of the recession. While February-May edged up to 1.6 quits per 100 jobs, the overall trend since late 2010 is flat. Annual job growth numbers have reflected an inconsistent recovery cycle with February 2012 representing a near-term peak at 1.6 percent annual growth. Job growth rates have slowed in the near-term. If employers don’t expand their payrolls, then workers cannot quit and find better uses for their skillsets. Of note is that the stalling of the quits rate follows a pattern of the prior recovery when it remained slightly below 2.0 for 14 months (January 2003-February 2004). The current quits rate (1.6) matches those seen in the depths of the recession (late 2008), not rates usually indicative of worker’s optimism about seeking better opportunities.
1 Typical BLS practice is to refer to hires and quits rates as percent, this would be confusing in a narrative with so many other percent changes for the CES (jobs) series, so this narrative will use hires (or quits) per 100 jobs. In BLS language: The hires (or quits) rate is computed by dividing the number of hires (or quits) by employment and multiplying that quotient by 100. http://www.bls.gov/
Notes: The quits rate is used in this analysis since it concentrates more on the dynamics of market behaviors rather than the levels. The most recently published quits rate in April of 2012 (1.6) equals 2,700,000 quits.