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BOHANON & STYRING: Monthly jobs reports have many moving parts

April 9, 2016

Economic AnalysisEach month, markets and media await the Labor Department’s monthly jobs report. And each month, the headline misses 90 percent of what’s really happening on the jobs front. 

The widely reported headline number suggests the economy is some sort of machine. X-thousand new jobs were created. Meanwhile, the other 148 million of us kept toiling away at what we were doing. Nothing changed except a few more people found some sort of work.

This paradigm might accurately describe the labor market in a stagnant, centrally directed economy. In a dynamic market economy, it falls short of describing reality. Economist Joseph Schumpeter’s “gale wind of creative destruction” is constantly creating and destroying jobs. 

Take a peek behind the curtain with this equation:

Net Job Change = Hires - Quits - Layoffs - Discharges.

In January 2016 (most recent month with complete data), we were told the economy added 295,000 jobs (the left-hand side). That’s true, but how we got that net number (the right-hand side) is more descriptive of the labor market. Actually, about 5 million of us found new jobs—hires. About 2.8 million voluntarily quit. The rest were fired, downsized or laid off.

A high quit rate is a good thing. It means people have found better jobs or have no offer but are confident the economy is healthy enough they can find something better. Economists call this quitting and hiring dynamic “the churn.” Lots of churn is healthy.  

The overall quit rate average is 2.0 percent per month, up from 1.4 percent at the pits of the recession in 2008. That’s good. But that average also conceals information useful to some of our ongoing debates. The quit rate in the Accommodation and Food Service sector was 4.2 percent per month in January. When you add in layoffs and firings, the total turnover rate is more than 70 percent per year. This indicates that most of those food workers marching for a $15 “living” wage aren’t planning to feed their families forever with their current jobs. They don’t stick around flipping burgers.

Contrast that with federal government employees. Their quit rate in January was 0.5 percent and almost no one is ever laid off or fired. President Reagan had it wrong. There is something more permanent than a government program. It’s the people who administer the program. 

Too bad these internals never get reported along with the monthly jobs number. Our pundits and politicians could learn a lot.•

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Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at INforefront.com. Send comments to ibjedit@ibj.com.

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