Full Employment with Border Control
The Bureau of Labor Statistics reported Tuesday that job openings fell to 6.88 million in February from an upwardly revised 7.24 million in January. Hires dropped to 4.85 million, the lowest since April 2020, and quits slipped to 2.97 million, the lowest since August of that year. The standard interpretation is that this confirms a “low-hire, low-fire” labor market in which employers and workers are frozen in place.
That gets the story backward. The JOLTS report looks less like a labor market losing steam than one settling into full employment in a country where the labor force has stopped growing rapidly.
From Super-Abundant to Ample
For most of the Biden years, the labor market was absorbing an enormous influx of new workers coming in from foreign lands. Net immigration ran at roughly three million a year, creating a labor supply so abundant that employers could hire aggressively while workers cycled rapidly from job to job. Hires ran high. Quits ran high. Churn ran high. But that abundance did not translate into better living standards for the people already here. Real average hourly earnings were negative year-over-year throughout 2022 and into the first half of 2023, falling by as much as three percent.
That era is over. Immigration enforcement has sharply reduced the flow of migrant workers, and the labor market is adjusting to the new arithmetic. The Kansas City Fed estimates that the number of jobs needed each month to keep the unemployment rate steady has fallen from around 150,000 to roughly 50,000. Brookings has suggested that number could turn negative this year.
Even Jerome Powell has acknowledged the shift. At his March press conference, the Fed chair said near-zero private-sector job growth may now be roughly what the economy requires. He admitted that kind of equilibrium “does have a feel of downside risk” and is “not kind of a really comfortable balance.” Of course it doesn’t feel comfortable. Economists spent decades training themselves to read labor market deceleration as weakness. They are now confronting a labor market that no longer needs large monthly job gains to remain tight.
This does not mean that people cannot get hired. The JOLTS report says that 4.8 million people were hired in February, a month when the employment situation report tells us the economy lost 92,000 jobs, dwarfing the 1.7 million people laid off. This gives us a layoff rate of 1.1 percent, slightly lower than it was a year ago.
Understanding that we’re in a low growth labor supply economy is the key to the JOLTS report. Hires are low not because employers have given up on hiring, but because there are fewer new workers to hire. Openings remain high by any meaningful historical standard. At 6.9 million, job openings are still roughly in line with the levels seen in 2018 and 2019, years no one mistook for labor market distress. What has changed is not employer demand for labor so much as the size of the pool from which employers expected to draw.
The Post-Pandemic Baseline Was the Anomaly
The quits data tells the same story. The private-sector quits rate was 2.1 percent in February. That looks weak only if the benchmark is the post-pandemic frenzy, when quits ran between 3.0 percent and 3.3 percent. Against a more normal baseline, it looks far less ominous. In 2003 and early 2004, the quits rate was also around 2.1 percent while the economy was growing at better than three percent. No one then described the labor market as paralyzed.
The post-pandemic labor market was the anomaly. Reopening demand, stimulus-bloated household balance sheets, and a massive surge in labor supply produced an unusual amount of movement. Workers quit at extraordinary rates because jobs were plentiful, cash cushions were thick, and employers were drawing from a labor pool swollen by migration. It was not a timeless model of labor market health. It was a temporary condition that saw workers losing purchasing power.
Layoffs and discharges rose to 1.72 million in February, but they remain below the 2017 to 2019 average and well below the levels common in the early 2000s. Employers are not shedding workers in large numbers. They are keeping the workers they have. That is what you would expect in a labor market where replacement is harder and labor supply is no longer being replenished at the pace of the last several years.
The error in the “low-hire, low-fire” story is simple. It treats hiring volume as a direct measure of labor market health without asking how fast the labor force is growing. When millions of new workers were entering the country each year, high hiring was necessary just to absorb the inflow. When that inflow slows to a trickle, hiring can decline without signaling weakness. It may simply mean the labor market is no longer flooded.
Analysts are reading this report as if the Biden labor market were normal or good for workers. It wasn’t. February’s JOLTS figures do not describe an economy running out of jobs. They describe an economy that has reached the point where labor is scarce, workers are harder to replace, and employers can no longer count on an ever-expanding supply of new hires. For American workers, that is not a problem to be solved. It is what a tight labor market looks like.
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