October 13, 2011

Why 3.2 Million Unfilled Jobs Isn't as Big as It Sounds

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Recently CNBC ran an article about how there are 3.2 million job vacancies in the US.    Given that there are around 14 million unemployed people and over 3 million vacant jobs it would seem that if we simply matched the people to the jobs we could cut unemployment significantly right?   Well no, the solutions to our unemployment are not that simple or easy.

The 3.2 million job vacancies are primarily due to natural worker turnover.   Every day people quit their jobs or are fired.   This happens day in and day out whether the economy is strong or if we're in a recession.   The 3.2 million open jobs are mostly just transitional jobs that are being vacated and filled week to week.

A certain amount of employee turnover is a normal thing for any business.   Fast food restaurants can have turnover of up to 300% which means they replace 300% of their workforce in a single year.   In other words the average employee only lasts 4 months.    THats pretty extreme and most businesses are far lower.   On the other end of the spectrum some of the Best Companies to Work For have voluntary turnover rates as low as 2% per year.   Even at the best places to work, some people will naturally move on to other things whether through retirement, moving or simply a desire to change jobs or careers.

The Bureau of Labor Statistics tracks the job vacancies and turnover at the Job Openings and Labor Turnover Survey (JOLTS) site.   Here are the latest stats from July 2011:

job openings = 3,228,000
job openings rate = 2.4%
hires rate 3.0%
turnover rate 3.0%
quits rate 1.5%
layoffs/ discharges 1.3%

The total number of unemployed people in the nation is not a static group of individuals and people are always joining and leaving the ranks of the unemployed.   IN the month of July 1.5% of the workforce quit their jobs and 1.3% were laid off or terminated.   Those two figures add to the number of unemployed.   There are also other separations from retirement and 'other'.   On the other end 3% of the population was hired.   That figure subtracts from the unemployed. 

The total 3.2 million job vacancies which is equal to 2.4% of the workforce is just a snapshot of one day in time.   Anytime someone quits their job or is fired the number of job vacancies goes up.  When someone is hired the job vacancies go down.   It takes time to fill any job so at any given point in time there will be jobs open.  The open jobs may have been open for a day, a week, a month or 2 years.    If 3% of the population either quit or was let go from their job and 3% of the population was hired then for the month 3% of the population was in transition from unemployment to employment.   Seems reasonable that if you take a snapshot of the economy then you may find 2.4% open jobs. 

Illustrative Example

 Lets look at a pretend example to illustrate how this happens.   Consider imaginary XYZ corp. who makes widgets.  XYZ has 100 employees.   Right now they have 3 job openings.  THey need to hire a welder and two warehouse stockers.   In the first week of the month, Bob in accounting retires and is replaced by Jane who is fresh out of college.   Bob had given his notice a month ago and HR hired Jane officially last week.  Ed the delivery driver is fired for having another accident with the company truck.  The ongoing interviews for warehouse stockers finds two good candidates Mike and Rick.  Mike stays but the Rick hates the warehouse job and quits after just 3 days.  Becky in clerical has also quit since she is going to go back to college and get her masters degree.  At the end of the month they hire Dave to replace Ed as the new delivery driver.   At the end of the month there are openings for a welder still, another warehouse stocker and the clerical job Becky left.

Job vacancies at the start of month = 3
Separations: Bob who retied, Ed was fired, Becky and Rick quit for a total of  = 4 separations
Hires : Jane the new accountant, Mike and Rick the warehouse staff and Dave the new driver = 4 hires
Job vacancies at the end of the month = 3

The 3 job vacancies at the start of the month are not the same openings as the 3 jobs available at the end of the month.   The only job that stayed open the whole  month was the welder job.   The other jobs were filed or opened during the month.  

If you take this example and then multiply it by about 140 million and you get something that looks like the US labor force.   On any given day someone is getting fired, laid off or retiring.  Jobs are opening and other jobs are closing.  

How long do jobs stay open?

The BLS doesn't seem to track the time that jobs are open.  At least I can't find anything about that on their stie.    However I found some other studies that discuss the time jobs stay open in general.

I found this study from Utah which looked at their job market in 2009.  At that time they measured how long jobs were staying open.    45% of their jobs were open less than 30 days and 28% of the jobs were filled in 30-60 days.    They also listed 23% of the jobs in the 'constantly recruiting' category.   For those jobs the employer has enough turnover that they always have openings.  This is likely at a bigger company like GE or retail places with high turnover like McDonalds or Walmart.thats 68% of the jobs.   What I think is more striking was the fact that only 4% of the jobs were open for over 60 days.   That is a very small amount of jobs that stay open for a long period of time.  The majority of the jobs openings were closed within a month or are openings that are always open due to constant turnover.  Of course thats specific to one state in 2009 so it isn't exactly the same across the nation or in other years.   But its evidence how many of the open jobs at any given time are NOT open for long periods.

Another study from 2004 measured the 'average time to fill' job vacancies.   They found that the average time it took to fill a job opening was 37 days.   It varied by industry from 26 days for retail at the low and 51 days for government jobs.

Of course the employment market in Utah and the numbers from 2004 are not what we'll see today nationwide.  But I can't see any reason to think the national job vacancies today are significantly different than these studies showed.   I would assume that most of the job vacancies in the USA are open for less than 60 days and or constantly recruiting.   And I think its also safe to assume that only a small minority of the job openings stay open and unfilled for a period of time longer than 2-3 months.

Bottom Line:   The 3.2 million job openings are not jobs that stay open a long time and are primarily due to ongoing employee turnover.

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