More job openings should result in lower unemployment, right? Maybe not this time. Or ever again. Some economists are saying in today's post-recession U.S. economy that as job vacancies rise, they will be filled at a different rate from when jobs were originally lost. And that lack of hiring is resulting in a fundamental - not cyclical - change in the labor market that may have serious implications for the staffing industry, as well as for our overall economy.
It seems an unusually high percentage of those currently unemployed have been unemployed for a long time, and there is data that detects a perhaps permanent shift in the relationship between job vacancies and unemployment.
In facts, the Fed now believes that the new "natural" unemployment rate is closer to 6.7% rather than the 5% prior to the recession.
A mis-matched work force unable to go where the jobs are is impacting the unemployment - and hiring - rates.
A recent post on the financial blog site Sober Look cites the Beveridge curve, developed in the UK back in 1958, that compares job vacancies with the unemployment rate, for evidence of labor market shifts. The post pays particular attention to labor inefficiency and labor mobility and says these factors below may be impacting the unemployment - and hiring - rates:
1. Weak labor mobility - many workers simply can't afford to move to areas such as Texas or North Dakota where the job markets are vibrant.
2. Skills mismatch - 48% of employed recent college grads are working at jobs that do not require college degrees, while hundreds of thousands of jobs requiring specialized skills go unfilled.
3. Part-time vs. full-time mismatch - many workers who receive unemployment benefits do not accept part-time work.
4. Impact of long-term unemployment - workers who have been out of work for a long time have trouble re-entering the workforce even if there are job openings. The longer you’re without a job, the less likely it is that you’ll get called back for an interview — by the eighth month of unemployment, the callback rate falls by about 45%.
5. Increased poverty - creates barriers to entry into the labor markets for certain groups.
6. No help wanted now - job openings may not always be for immediate hires.
I shared the Sober Look post and the Beveridge curve with a friend of mine who is a recruiter to get her opinion, and she said one significant thing neither may be taking into account is the impact of the Affordable Care Act on hiring.
Is taking on a new employee perhaps more risky today in terms of long-term healthcare costs than it used to be?
"Is this lack of hiring a response to the health care law?" she asks. "Is taking on a new employee perhaps more risky today in terms of long-term healthcare costs than it used to be? The health insurance law's community rating provisions apply to small group plans, thus small firms with younger workers that may have been quick to hire in the past will no longer have an advantage over small firms with lots of older workers. In fact, small firms with older workers may actually see their costs go down, or at least not rise as fast as in the past."
She is referring to one of the key provisions of the Affordable Care Act whereby insurers are required to use “adjusted community rating” to determine premiums for individuals and small groups. The provision actually prevents insurers from considering health history and current health status, and all small employers in a particular geographic region must get relatively the same premium rate.
That provision could be a bitter pill to swallow for healthier companies, who could see premiums shoot up exponentially on top of their “normal” recent rising premiums.
She also noted a generational shift, saying if older workers are delaying retirement, fewer younger workers will need to be hired to replace them.
Some opine that unemployment insurance is causing unemployment. But a Boston Fed paper finds that much of the rise in long-term unemployment is concentrated among new entrants to the work force or people re-entering the work force after an absence — people who aren’t entitled to unemployment insurance in the first place.
Given that long-term unemployment has been at record levels for some time, and a healthy economy is usually driven by improvements in hiring rates, these are significant shifts.
There had also been a shift in perception. "There's a change in employee expectations of what the labor market has to offer them," says Katherine Stone, a law professor specializing in labor relations at the University of California, Los Angeles.