The U.S. Economy Still Isn't Churning
My Bloomberg View colleague Matthew Klein just weighed in with "good news on jobs," saying that the rise in the number of people quitting is a good thing. He's right: Quits show the employee's confidence that he or she can find a better job.
There's a counterpoint, though. The rate of labor market "churn" -- the number of people moving from job to job per quarter -- dropped by 2.3 million during the recession and hasn't recovered.
That's the conclusion of a study last year by economists Edward Lazear and James Spletzer, who broke down labor-market activity into "growth hires," "declining separations" and "churn." Lazear and Spletzer emphasize the particular importance of churn. Companies rise and fall, but churn plays a central role in the efficient operation of labor markets.
Robert M. Kimmitt, a former U.S. Treasury deputy secretary, made the case for churn back in 2007. Kimmitt wrote that what we want is "an economy in which people looking to move up have as many opportunities as possible from which to choose."
Low churn means that people may be choosing to hold down jobs that aren't quite right for them. The average job change produces a $1,000 productivity gain, according to Lazear and Spletzer, who found a total cost of $208 billion since 2008.
We can approximate their measure of churn by looking at a slightly different yardstick, the total flow in and out of employment in today's Job Openings and Labor Turnover Survey data. The report showed that 8.7 million Americans found a job or left one in April -- down 2 million from pre-recession levels.
Why the decline? Blame weak demand for labor. That clogs up the cycle of job openings, hires, fires and quits. You have to be brave to leave a job amid high unemployment and little hiring -- but with few quitters, positions don't open up and so the low churn persists.
The flipside of low churn is extended periods of joblessness. The average unemployed person waits 37 weeks before finding work. That measure hasn't improved significantly since the recession. Before it, workers on average landed a job in 17 weeks.
To jumpstart churn, the U.S. economy needs more "growth hires." The Federal Reserve, in particular, should pay attention: It has promised to wait for "substantial" improvement in labor markets before scrapping its bond-buying program.
The Fed is watching the unemployment rate, but its statements indicate it also considers "additional measures of labor market conditions." Churn should be one of those. The ultimate task of labor markets is to allocate workers to positions -- and churn measures that directly. That it hasn't improved since the recession means that labor markets are much less healthy than falling unemployment might suggest.
(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)