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No JOLTS in Job Creation

Posted By James Sherk On October 9, 2009 @ 3:27 pm In Economics | Comments Disabled

Unemployment has risen sharply during this recession and has almost reached 10 percent of the workforce. However policy makers have paid relatively little attention to why unemployment has risen so sharply. With so much coverage of the collapse of the auto industry in Detroit, the finance industry in New York, and the deflation of the housing bubble nationwide much of the press has focused on job losses. And there is a lot of truth to this. Layoffs have increased significantly since the start of the recession. But that is not the whole story, or even the biggest part of the story.

Data released today by the Bureau of Labor Statistics sheds light on why unemployment has jumped so sharply. The latest release [1] of the Job Openings and Labor Turnover Survey (JOLTS) shows that lower job creation is the bigger – and largely untold – story behind rising unemployment.

News coverage leads many Americans to believe that the economy is losing hundreds of thousands of jobs a month. This is not true. In fact the economy is losing millions of jobs each month – at the same time employers create millions more. The monthly job losses figures are net job losses: the difference between all the jobs created and those jobs lost. Total job losses are an order of magnitude higher. For example, 4.3 million American workers left their jobs in August – 2.3 million laid off or discharged and other 2.0 million quit or retired. However, employers also hired 4.0 million Americans at new jobs that month. The 236,000 job difference (with no rounding) between these figures is the figure reported in the press.

Since the recession began at the start of 2008 layoffs have increased. However, less reported in the press, new hires have fallen even more. Look at the data.

In the last quarter of 2007 – the last quarter before the recession – employers laid off or discharged an average of 1.9 million workers a month. By August 2009, the most recent data available, that figure jumped to 2.3 million workers laid off. Layoffs have increased by 400,000 workers a month since the start of the recession.

However, job creation has fallen by even more. The number of job openings at the end of each month has fallen to its lowest level since the government started the JOLTS survey. And hiring has fallen sharply. In the last quarter of 2007 employers hired an average of 5.2 million new workers a month. By this past August new hires fell to 4.0 million workers – 1.2 million fewer new jobs created each month.

In part both these figures reflect the fact workers become a lot less likely to quit in a recession. Fewer workers voluntarily leaving means employers need to hire fewer replacements. It also means that they must fire workers who proved poorly suited to their jobs and who – in a better economy – would have voluntarily left. But a large portion of this change in hiring and firing is real – as attested by fact that the median time workers stay unemployed has doubled. Workers have much greater difficulty finding new jobs now and this is driving unemployment higher. Unemployment will not fall until businesses start creating more jobs.-

Unfortunately, the enormously expensive “stimulus” package that the President passed does little to address this problem. Spending $800 billion on government programs does not encourage entrepreneurs to start new businesses or businesses to expand operations. It does not encourage the risk taking and innovation needed to grow businesses and create jobs. All it does is spend a lot of money on traditional liberal priorities.


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URL to article: http://blog.heritage.org/2009/10/09/no-jolts-in-job-creation/

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[1] release: http://www.bls.gov/news.release/pdf/jolts.pdf

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