The Job openings and labor turnover survey: what initial data show: early results from these new data series show trends that are in line with other surveys, both private industry and government, and allow for a more complete picture of the labor market

Monthly Labor Review,  Nov, 2004  by Kelly A. Clark

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Hires and separations estimates can be used along with other economic indicators in examining movements in the business cycle. Hires are procyclical, increasing when the economy strengthens and decreasing when the economy weakens. In examining employment and the hires rate, there is a significant correlation between the two series. This indicates that employers tend to control their employment level by altering their hiring patterns, as there are significant costs associated with separations. (9) When economic times are good, employers hire to replace employees who have separated and may hire for newly created jobs. During recessions, employers may hold back on hiring to replace separated workers until business conditions improve, rather than increase separations overall. There is a close trend movement between the unadjusted series of employment and the hires rate and the related movement of the quits rate, the largest part of total separations. (See chart 3.) In fact, the correlations between hires and employment and quits and employment are positive and significant. (10) As quits tend to behave procyclically, increasing when the economy is strong (and thus as employment increases), the correlation with employment is positive.

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The movement of the separations rate is dominated by quits. In fact, quits have ranged from 51.3 percent of total separations in June 2003 to more than 60 percent in early 2001 and have averaged 54.7 percent over the course of the published data series. This is an important fact in examining how separations data move with the business cycle. Intuitively, separations would seem to be countercyclical; as economic conditions deteriorate, employers lay off workers. However, because of the dominance of quits among the three components of total separations, separations have behaved procyclically. Total separations have decreased during the current recessionary period, largely because of the decrease in quits over that period and despite the uptick in layoffs and discharges. (See chart 4.)

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Layoffs and discharges did increase during the recession, especially from June to October 2001, but perhaps not as much as media reports would indicate. Often, companies report a target number of "layoffs," but some companies may actually decrease their workforce through attrition and by decreased hiring during worsening economic conditions. Other companies may lay off workers in their factories overseas before cutting jobs at U.S. plants. In other cases, planned layoffs never materialize.

The other separations rate, which includes retirements, deaths, separations due to disability, and transfers to other locations of an establishment, has remained relatively stable over the course of the published series, fluctuating between 0.2 percent and 0.3 percent. A large proportion of other separations is thought to be retirements, and thus the demographic shift in the composition of the labor force may affect the other separations rate in coming years. As the baby-boom generation moves into retirement years, the result may be an increase in the other separations rate over time.