Understanding the Tight Labor Market

As the economy strengthens, the tight labor market has led to a variety of unexpected changes (e.g., new recruitment and retention strategies, wage increases, and greater flexibility for employees). Meanwhile, economists have theorized about the most effective way to measure market tightness (including the Consumer Price Index and wage growth). A study done by the Peterson Institute for International Economics offers that “the unemployed-to-job openings and quits rate model predictions are doing a better job making sense of what is happening—and suggest additional pressures on prices and wages as well as faster inflation-adjusted wage growth going forward.” In other words, calculating the delta between the number of job openings and number of job seekers is perhaps the best measurement of market tightness (and inflation) as seen in this graph.

Business Takeaway: The asymmetrical changes in the number of job openings and the number of hires speaks to the challenge employers have in hiring these days. It is hard to predict how long this continued tightness will last, but monitoring this data may help you better understand market tightness and related challenges—e.g., wage growth, the fluctuating supply of job seekers, and why your own employees might leave.

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