Sunday, December 20, 2009

Job Openings - Leading Indicator of Job Growth?


While the employment picture remains grim in the United States, the number of job openings has increased by over 4% since bottoming in July 2009. As a leading indicator, this provides a bullish data point for the employment situation as we close the books on 2009.

A few points explain the spike in job openings. Firstly, the increase in listings reflects the normal frictions that occur in the labor market as companies prepare for an increase in employment. After all, you need to post a job offering before actually hiring someone. Secondly, with the pool of unemployed workers in excess of 15 million, companies are rightfully being very discriminating in who they seek to hire. Most executives remain suspicious of the apparent rebound in the economy and want to make especially sure they have a need for additional workers before adding to their payrolls.

However, I believe a third factor is having the greatest influence on job openings without a commensurate increase in employment. Simply put, the administration's repeated extension of unemployment insurance is making out of work Americans more selective in what jobs they are willing to settle for. As explained in this very enlightening NY Post article ("The Stimulus for Unemployment") if you subsidize something (i.e. unemployment) you get more of it. Extending unemployment benefits from 26 to 79 weeks has removed the ballast of necessity for many unemployed folks. Why settle for anything less than ideal when the unemployment check keeps rolling in?

With the benefit of hindsight, the administrations's worst case assumption of 9% peak unemployment used in the bank "stress tests" seems patently laughable. This has been the source of much ribbing by investors and economists alike. Ironically, it may be the administration's actions regarding unemployment insurance that resulted in such a sizable divergence from their original estimates. As suggested in the referenced NY Post, the government's forecast may not have been too far off if it left the labor market to its own devices.

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