Job openings exceed number of unemployed

Earlier this month the Labor Department reported that there are more open positions than there are unemployed workers.  There were 6.7m openings at the end of April, well above the 6.3m unemployed.  This is the first time this has happened since the data series on job openings launched in 2000.

Although this is encouraging news for individuals looking for work, keep in mind that many employers prefer to poach talent away from someone else.  The unemployed have to compete against people who already have jobs for open positions.  Also there are many people involuntarily working part-time who are trying to gain full-time positions.  Takeaway: employers still have a large pool of position-seekers from which to draw, but the pool has gotten smaller relative to the number of open posts.

Companies with open positions will now consider changing the skill and experience requirements and increasing wages.  Consider the following example from WSJ:

To attract workers, the Saladworks restaurant chain has raised its starting wages about 5%. It also has relaxed standards on tattoos and piercings, allowed employees to wear jeans and bandannas, and gotten more flexible about schedules.

How are those pay raises working out for Walmart?

In early 2015 Walmart made a strategic decision to start paying higher wages to store employees.  Starting pay went up to $10/hour with department managers getting bumped up to $15/hour.  Walmart also started investing more in training that would make workers promotable.  What happened?

According to a recent NYT article, the good news is that customer satisfaction and sales have both increased.  The not so good news is that profits have lagged the averages for S&P Retail and the S&P 500.  Managers report that Walmart is now attracting a different sort of employee, one looking for a career instead of just a job.  Productivity seems to be higher as well.  Conceivably the profit situation will turn around once enough workers have been trained that Walmart can get a return on the training investments.

How big is the gig labor market?

The internet has enabled online transactions for real time services between service customers and providers.  You can reserve an overnight stay in someone's home or apartment.  You can get a ride to work in someone's car.  You can get a voiceover narration performed by someone in the Czech Republic.

The gig economy provides new options for workers to make money when they want and how they want while providing customers with more choice.   But it also undercuts existing business models.  Licensed cab owners are less than fond of Uber; hotels are hardly enamored with Airbnb.  Also because Uber drivers are independent contractors, there is no guarantee of a minimum hourly wage and they are unable to organize into unions (as if unions could organize any private sector workers anyway).

With all the headlines, my colleagues Larry Katz at Harvard and Alan Krueger at Princeton set out to measure the size of the gig labor market.  The results, as reported in WSJ: a mere 0.5% of workers were engaged in a typical week.  Uber accounts for two-thirds of this modest number.

Wave of the future?  We would do well to suspend judgment.

What happened to construction workers

Today builders say they are facing a profound shortage of qualified, trained workers.  Yet construction employment dropped by 2.3m jobs between 2006 and 2011 and is still 1.3m below the 2006 peak.  So what happened to over one million workers?  Why aren't they coming back in the market?

WSJ's Real Time Economics blog has the answer: some have switched to other industries but many have dropped out of the labor force.  At the same time hiring of young workers has been slow, so now there are not enough trained workers to meet demand.

This evidence further supports the view that despite the lowest employment to population ratio we have seen in 40 years, the labor market is close to having a balance between supply and demand.  Those who have dropped out of the labor market after they lost their jobs in the Great Recession do not appear to be coming back.

More job openings than ever before

The U.S. Department of Labor reports that last May there were 5.4 million open positions, more than ever before.  Although still considerably smaller than the 8.3 million who are unemployed, the ratio of open positions to unemployed persons is close to what it was before the Great Recession, according to WSJ.

This lends further weight to the argument that the job market really is beginning to tighten, despite the large drop in the size of the labor force and the number of workers who are in part-time jobs but would prefer full-time jobs.  It is a good time to be on the market!

Is it time for more overtime?

Last week President Obama announced new regulations that will expand the availability of overtime. Overtime is restricted to hourly employees, along with salaried employees who lack managerial responsibilities.  Defining the latter is dicy, so historically eligibility has been determined via a salary threshold.  Right now overtime is limited to those managers making less than $455/week.  The new regs kick that up to $970/week.

On the surface this would mean that about 5 million additional employees will now be eligible to collect overtime.  But we should expect employers and workers to make adjustments.  Under the old rules, exempt employees had an implicit understanding with their employer -- even though we do not get overtime, we are involved in a fair exchange where we provide so much work in so many hours and in return we receive so much income.

Employers looking to avoid the extra overtime charges have two options: cut hours so that they do not have to pay overtime rates or demand more work to be completed in the existing hours.  Assuming the overall workload stays the same, the first option will make sense for firms with low training costs and low spends on employee benefits (benefits are typically paid on a per person basis, rather than on a per hour basis).  Such firms can cut hours per person and hire more people.  The second option, which will usually involve downsizing, makes more sense when training new help is costly and benefits are expensive.

In deciding which course to take, employers have to make sure that they retain employees.  Whether they cut hours or increase workloads, employees will be worse off than before unless they start receiving some extra overtime pay.  Also, whatever deal is reached with the workers who are newly eligible will have to apply to those who were already eligible.  Bottom line: I expect to see adjustments along all three dimensions -- overtime hours worked (lower), workload expectations (higher), and overtime income received for newly eligible employees (higher).

Supply and demand for truckers

Spending the morning at the NC State Poole College of Management's semi-annual Supply Chain Resource Cooperative meeting.  Lots of great student projects for companies like CAT, Duke Energy, GSK, MetLife and others.

One topic that has come up repeatedly is the shortage of truckers and the increasing difficulty firms are having with this critical transportation mode.  At the same time, the percentage of young people who are participating in the labor force is at a 30 year low.

So what is stopping young people (or even not so young) from entering the profession?  (I have posted on this topic before.) Lots of theories were offered.  Part of the story is that training is expensive to obtain (but there are student loans); another part is that many potential job candidates cannot pass background checks and drug tests (maybe, but I would like to see some numbers).  One new theory offered by Jason Schenker (economist and regular SCRC speaker) -- Xbox addiction.

A first sign of wage growth

Numbers about the labor market continue to send mixed messages.  The unemployment rate is down to 5.9 percent, a level last seen in summer 2008.  In contrast the employment-population ratio dropped from 63 per cent in early 2008 to 58.5 percent by fall 2009 and has not recovered since (still at 59.0 percent).  So is the labor market back to full employment, as the unemployment data indicate, or is there still a significant excess supply of potential workers?

A key signal, many observers feel, is what will happen to wages as output expands.  If those out of the labor force are really just like the unemployed, employers will be able to fill new positions without having to raise salaries.  On the other hand, if those who have left are out for good and we really are near full employment, then salaries will need to increase.

It is too early to know which interpretation will turn out to be correct.  Last week WSJ reported rising "manufacturing wages ... in some major industrial states as shortages of certain skills ... force more companies to pay up to attract and retain workers."

However, most jobs are in the service sector.  When we hear about Walmart having trouble getting greeters and cashiers, we will know for sure that the labor market is getting near capacity.

Employers taking longer than ever to fill positions

Just ran across this WP blogpost by Catherine Rampell that shows the average vacant job stays open 25 days.  There is tremendous variance by industry.  Construction positions are filled within 10 days, whereas finance positions take 40.  Want a good example of diseconomies of scale?  Firms with 5000 or more employees take 68 days!   

Vacancies are at the highest level in the history of this since data series that goes back to 2001.  One might interpret this as another sign that the labor market is tightening, although this is inconsistent with the extremely modest wage growth we are observing.  Another interpretation I am seeing is that corporate America has unrealistic expectations of job applicants and would rather invest in finding the ideal person than train someone else.  This might be a rational strategy at a time when employment still does not seem to be growing very much.  

How top execs view competitiveness

This week Harvard Business School issued its third annual survey of how its alums view American competitiveness.  In a nutshell they are still pessimistic but not as pessimistic as one or two years ago.  Alums working in large companies were more optimistic than those in small companies.

What do they think is going well?  They speak fondly of universities, entrepreneurship, firm management (a little self-serving?), innovation, capital markets, and property rights.  They speak less fondly of K-12 education, regulation, tax code, and the political system.

A strong theme that emerged from the survey was that although businesses are doing well (hello S&P 500 at 2000), most households have yet to share in the recovery.  In addition to shoring up K-12, the report points to the need for businesses to rethink their hiring processes and to invest more in training.  One point I particularly liked is the need to stop talking about labor markets in the aggregate and a need to focus at more micro levels, such as workers in a particular occupation, industry and location.  

If you are not up for the full report, you might find this Fortune interview with one of the lead authors Michael Porter worthwhile.  I was actually one of Porter's first graduate students at Harvard all too many years ago.

Chinese imports and U.S. manufacturing jobs

Continuing on the recent blog theme on why is the U.S. labor market doing so poorly in terms of jobs and wage growth, I came across this study by a team of highly respected MIT economists that looks carefully at the impact of growing imports from China.  The news is not good and, frankly, not surprising.  

Our central estimates suggest net job losses of 2.0 to 2.4 million stemming from the rise in import competition from China over the period 1999 to 2011. 

This study focused only on Chinese imports, missing out on the impact of imports from the likes of Bangladesh and Nicaragua.  

Take one dose of import competition, another of technological change, and yet another of reduced fluidity and you might very well have a very convincing explanation of why employment remains so low.  

Have less fluid labor markets led to lower employment?

Although the unemployment rate is near 6 percent, the employment population ratio continues to be well below where it was in 2007.  Chicago Booth economist Steve Davis and Maryland economist John Haltiwanger (DH) presented a paper yesterday at the Kansas City Fed conference in Jackson Hole WY that lays out evidence that our labor markets have become less fluid and that this has contributed to lower employment.

In a labor market context fluidity refers to the sum of the rate at which jobs are created and the rate at which they are destroyed.  DH show that fluidity has dropped by a sizable margin since 1990.  Part of this can be explained by an older labor force and a smaller number of young firms today compared to 25 years ago.  The rest of the story is harder to figure out now, but DH consider changes in business models and supply chains, increased training requirements, job lock associated with health insurance, court rulings that have limited employment at will, and occupational licensing as possible contributors.

Of course if there are fewer jobs being destroyed, that means fewer unemployed workers.  However with fewer jobs being created there are fewer opportunities for those looking for work and spells of unemployment become longer.  After crunching the numbers DH find a strong correlation between reduced fluidity and lower employment.

The study has already received press attention (NYT story here, thanks to Marginal Revolution for the link) because of its implications for economic policy.  DH argue that the labor market has faced structural issues for the last 15 years.  The numbers looked better than they should from 2001-2006 because of the housing boom and looked much worse since 2008 for obvious reasons.  Zero percent interest rates are not going to fix this problem.  

More on labor shortages

Two recent pieces on labor shortages, following up on my earlier post:
1) Today's WSJ reports a looming national shortage of less-educated workers.  Two things going on: more high school grads are obtaining some post-secondary education (supply down) and demand is picking up in sectors that need less-educated workers (demand up).  So what does econ 101 (or for NC State MBAs MBA 505) tell us is going to happen?  If the claims about shortages are real, wages will rise; if the claims are just management bellyaching, nothing will change.
2) Wharton HR expert Peter Cappelli has been arguing that one reason employers are having trouble finding qualified workers is that the corporate world has vacated the training business.  Workers now obtain skills on their own (usually through education) or obtain them through gradual observation and absorption on the job (learning-by-doing).  He tells BusinessWeek that employers will have to start investing more in training to turn this around.  Such investments are risky unless trained employees can be retained.  So maybe they will have to be paid more???

Labor shortages starting to appear?

The unemployment rate has fallen to almost six percent, but with the employment/population ratio at a 30 year low I have been reluctant to argue we are anywhere near hitting labor force capacity.  However, I have run across a couple of news stories in the last week that signal the possibility that some shortages are starting to appear in some markets.

Story #1: Neil Irwin's NYT piece on the shortage of truckers.  Training requirements are not especially high and wages have lagged behind inflation over the last five years.  But big companies claim they are having a hard time finding qualified applicants and some are starting to pony up, a $2k bonus here and an increase in mileage there.

Story #2: The local N&O reports that a big multifamily residential construction project in Cameron Village has been slowed down because of a shortage of qualified workers.  The contractor claims that similar shortages are facing the industry nationwide.  Frankly, this one is a bit hard to believe given the drastic downsizing the construction industry has undergone.  But maybe folks who lost their construction jobs five to six years ago have found something else they prefer to do.

Why some restaurants pay much more than the minimum wage

Some cities and states are raising the minimum wage to $10 an hour or more.  McDonalds workers in big cities are threatening to go on strike for $15/hour.  Judging only from the headlines, one would think the restaurant industry, especially fast food chains, is dominated by low wage jobs.

This recent NYT piece shows otherwise.  Chains such as Shake Shack and In-N-Out Burger pay over $10 an hour simply because their owners think that is the right business decision.  Higher wages allow managers to hire from a more talented applicant pool.  They also reduce turnover and encourage longer term investments in training.  In some cases the personal values of ownership also play a role in wage setting.

The tougher question is why does In-N-Out pay relatively well and other chains stick to near the minimum wage.  After all the core business at McDonald's and In-N-Out is the same and the prices are comparable.  One possible difference is that more skill or training may be needed at In-N-Out where everything is made fresh.

Wage increases on the horizon?

The national unemployment rate is almost back to where it was before the Great Recession.  Ordinarily that would lead us to expect a tighter labor market with rising wages and shortages in certain occupations.  But the economy has been anything but ordinary, especially the labor market.  The labor force participation rate has plummeted and many analysts think that once the labor market looks better, more people who are currently sitting on the sidelines will start looking for work.  If this happens, there likely will not be an uptick in wages for the average worker.

Many CFOs are expecting to have to give larger raises, according to Saturday's WSJ.  Wage rates have been flat since the recession started.  In a survey jointly performed by the Fuqua School of Business and CFO Magazine, CFOs expect wages to increase by 3% in the coming 12 months.  WSJ thinks that firms will have to accept smaller profit margins as a result, although raising prices or cutting non-labor costs are other options.

Evidence that employers really care about internships

What do employers really look for in a resume?  To find out four researchers at three universities did a randomized study where they sent fictitious resumes to online job postings.  Each resume showed a college degree received in 2010 and one job held since then.  The resumes varied by major (half business and half liberal arts), GPA and whether the applicant held an internship in the same field as the opening.  

I was a bit surprised to see 17 percent of the resumes were invited for an interview; this strikes me as very high for an online application process.  But more importantly, what were the key variables in predicting who landed the interview?  It was not the major.  It was not the GPA.  It was whether or not the student had an internship!  Those with internships were 14 percent more likely to get interviews than those without.  

This may actually understate the true impact of internships because it does not include the most common scenario -- where the internship leads directly to a job.  So even though summer school starts tomorrow, don't give up on that internship yet!

Will your pilot soon be earning the minimum wage?

The labor market for airline pilots is going through some unexpected turbulence.  Recently WSJ reported that a combination of boomer retirements and new training requirements (1500 hours of flight experience compared to 250 originally) were causing some regional airlines to drop their least profitable flights.  Aspiring pilots can amass tens of thousands of dollars in debt to get the flight time needed to meet the training requirements.  So why do they do this, especially since regional airline pilots earn an average salary of $22,400 and some earn only about $15k?

The answer -- eventually the pilots hope to land a position with a major carrier that pays well into six figures.  That is why they are willing to accept positions that barely pay more than the current minimum wage (and would be below the aspirational minimum wage of the Obama administration).   My expectation: expect to see salaries for regional pilots increase as always happens when there is a shortage and markets are allowed to operate.

Gaming your way into a job

Knack.it is a Palo Alto startup that endeavors to use gaming and big data and to lead to improved decisions on employee selection.  Knack has developed games such as Wasabi Walter and Balloon Brigade that test for personality traits.  Companies can then use the games to decide which traits are associated with good job performance and hire based on those measures.

MIT Sloan's Erik Brynjolfsson notes in a recent Business Week article, "People are our biggest resource, and right now a lot of them are mismatched."  Firms make screening decisions on such factors as interviews and number of short-term jobs held that in many cases are not reliable predictors of job performance.  Now they can have star employees play Knack and develop a profile of a successful hire that can be then matched against the Knack performance of job applicants.  The Economist reports that Shell and Bain are starting to use Knack; will this be the beginning of a trend?

MBA job market quite strong

The Graduate Management Admissions Council just issued a report on placement for spring 2013 MBA graduates, and the news is very good.  Among US citizens 95% of the spring grads had jobs by September.  This is up from 91% last year and is the highest since the Great Recession.  The overall placement rate (which includes international students) is somewhat lower at 92%, reflecting a tough job market in Europe and difficulties in obtaining green cards in the US.

These stats are consistent with the experience NC State MBAs have had this year.  Hopefully the 2014 market will be even stronger.