Magazine article Economic Trends

Does the Recent Trend in Labor Demand Presage Recession?

Magazine article Economic Trends

Does the Recent Trend in Labor Demand Presage Recession?

Article excerpt


The number of job openings or vacancies posted by employers constitutes a good measure of unmet labor demand. Assuming employers spend some time and resources to recruit workers, this measure could give us a nice clue about their expectations of future labor market conditions.

The longest time series of vacancies that we have is the Help-Wanted Advertising Index (HWAI) provided by the Conference Board. This index is monthly and tracks help-wanted ads in more than 50 major metro area newspapers. HWAI is normalized to 100 for 1987. A higher index value indicates higher numbers of help-wanted ads are appearing in newspapers.


The HWAI experienced sharp declines in every postwar recession. More interestingly, every decline in the index has been accompanied by a recession, with the exception of the mid- 1960s. After hovering in the 40s for most of the 2003-2005 period, the index started to Fall gradually at the beginning of 2006. In January 2008, the index hit 21, its all-time low.

Ironically, the index by itself may not be very informative about the difficulty employers have in filling positions, because that difficulty depends not just on how many vacancies there are, but also on the number of workers who are looking for jobs. For instance, the index could be low (indicating few vacancies), but employers could expect to fill vacant positions relatively easily if many unemployed people are searching for work.

In order to assess employers' difficulty in finding workers, we need measure of market tightness, which we have in the ratio of help-wanted newspapers ads to the number of unemployed workers. Movements in this ratio closely follow those of the HWAI. During expansions, both market tightness and the HWAI rise, and during recessions, they both decline. Recent labor market conditions, according to this measure, have been exceptionally slack. Currently, the ratio stands at 0.205, the lowest it has ever been.

However, the declining trend in these measures might be related to Factors independent of labor market conditions. In particular, a shift toward posting vacancies online rather than in newspapers could be responsible for it. The Conference Board started to gather and report data on online help-wanted ads in May 2005. Although this series is not long enough to cover a frill business cycle, we still see that vacancies, as measured by online ads, have grown from about 3.1 million to more than 4.3 million in two years (May 2005-May 2007). …

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