Full Employment Through Border Control

The Bureau of Labor Statistics revealed on Tuesday that the number of job openings in February decreased to 6.88 million, slightly adjusted upwards from January’s figure of 7.24 million. At the same time, new hires dropped to 4.85 million, marking the lowest point since April 2020, while job separations fell to 2.97 million, also the lowest since August 2020. This situation suggests a labor market characterized by “low employment, low firing,” indicating employers and employees are somewhat stuck.

Returning to the previous discussion, the JOLTS report indicates that the labor market seems to be stabilizing instead of losing its energy, hinting at full employment in countries where labor force growth has halted.

From Super Rich to Rich

The Biden administration saw the labor market absorb a significant influx of talent, mostly from abroad, with net immigration around 3 million people annually. This large labor supply meant that employers were eager to hire as workers frequently switched jobs. Recruiters felt optimistic, and opportunities felt abundant. Yet, this increase in workforce didn’t necessarily translate to improved living standards for existing residents. The real average hourly wage slid throughout 2022 and into early 2023, experiencing declines up to 3%.

However, times are changing. Immigration authorities report that the influx of migrant workers has sharply decreased, forcing the labor market to adapt to this new reality. The Kansas City Fed estimates that the monthly job growth required to stabilize the unemployment rate has dropped from around 150,000 to approximately 50,000, with Brookings hinting that this number could even turn negative this year.

Jerome Powell, the Fed chair, has also taken note of this shift. He mentioned in a recent press conference that private sector employment growth is near zero — perhaps a reflection of what the economy now demands. He acknowledged this new balance carries risks and is far from being a comfortable state. Economists have trained themselves to see labor market slowdowns as signs of weakness, yet they now encounter a market that doesn’t demand extensive job growth every month to stay robust.

That doesn’t imply hiring has ceased. The JOLTS report shows employment in February was 4.8 million, even as the economy lost 92,000 jobs—quite a contrast to the 1.7 million layoffs reported. This resulted in a layoff rate of 1.1%, slightly better than a year ago.

Recognizing that we are in a low-growth, labor-supply economy is crucial to interpreting the JOLTS report. The low employee count isn’t necessarily due to employers giving up on hiring. Rather, there are simply fewer new workers available. Even when compared to historical numbers, the current 6.9 million job openings align with figures from 2018 and 2019 when the labor market was deemed healthy. What has changed isn’t employers’ demand for labor but the expected size of the talent pool.

The Post-Pandemic Baseline Was Abnormal

Retirement figures reinforce this narrative. February’s private sector turnover rate stood at 2.1%, a figure that may seem low compared to the post-pandemic spikes of 3.0% to 3.3%, but it aligns more closely with historical norms. Even during the recession of 2003 and early 2004, turnover was around 2.1%. Back then, growth rates over 3% were not uncommon and the labor market wasn’t viewed as stagnant.

The post-pandemic labor environment has been unusual. The rapid turnover was driven by heightened demand, consumers’ stimulus-enhanced finances, and a surge in labor supply. With abundant jobs and ample financial cushions, employers tapped into a workforce bolstered by immigration, leading to a higher retirement rate among workers. However, this was more a temporary situation than a sustained norm, alongside workers losing purchasing power.

Despite layoffs rising to 1.72 million in February, they remain below averages from 2017-2019 and are well under levels typical of the early 2000s. Employers seem hesitant to lay off large batches of workers, choosing to retain their current employees—a pattern expected in a labor market where finding replacements is increasingly challenging and labor replenishment has slowed.

The simplified view of “fewer hires, fewer layoffs” misses a fundamental aspect. Employment figures shouldn’t simply be assessed as direct indicators of labor market health without considering how fast the labor force is growing. With millions of new workers previously entering the country yearly, a huge employment demand was necessary just to accommodate that surge. If this influx gradually decreases, employment might shrink without indicating market weakness; it may just mean the labor market is no longer overwhelmed.

Some analysts interpret the report as signaling a stable or beneficial labor market under Biden’s administration, but that’s misleading. February’s JOLTS statistics don’t suggest a scarcity of jobs; rather, they depict an economy reaching the stage where labor shortages mean filling positions is becoming tougher, and employers can no longer depend on a continually expanding supply of new hires. For American workers, this isn’t a dilemma to resolve; it reflects what a tight labor market genuinely looks like.