U.S. Employee Turnover is Almost Back to Normal
U.S. Employee Turnover is Almost Back to Normal
The pandemic unleashed a turnover tsunami, but now the quits rate is almost back to what it was before
The labor market remained robust in April, according to today’s JOLTS report. But the best measure of labor market tightness in the report, the quits rate, fell to 2.4%—its lowest rate since February 2021. It is now well below its peak of 3.0% reached last year, and almost all the way back to its pre-pandemic rate of 2.3%.
The decline in employee turnover is a sign that workers are no longer finding as many superior alternatives to their current jobs, despite what sky-high job openings would suggest.
The number of employees quitting their jobs is arguably a better measure of labor market conditions than the number of job openings for three reasons:
Quits are more measurable. When human resources (HR) department contacts open their survey questionnaires from the Bureau of Labor Statistics, they can easily see in their company HR platforms how many employees quit during a calendar month. It is more difficult for them to verify the number of valid job openings at their companies. Yes, they can see the number of job requisitions, but it is unlikely that they check in with each hiring manager to determine the status of each one—whether the job has been filled yet, and whether it still will.
Quits are more consistent with other labor market measures. The long-standing relationship between labor market indicators such as quits, layoffs, hires, and monthly payroll gains has remained intact in recent years, but job openings have diverged from the pack. That suggests that there may be changes to the way companies count job openings that capture recruiting intensity but do not track the actual number of jobs being created.
Quits provide some indication of the quality of the job openings available. The last time the job openings rate was around 6%, as it is now, the quits rate was substantially higher at 2.6%. If there were as many attractive job opportunities available to workers now as then, surely workers would be leaving their jobs to take those opportunities at similar rates. The decline in quits suggests that either there aren’t really as many open jobs available, or that the jobs available are of a lower quality. Either explanation would suggest that the labor market is slacker than job openings alone would suggest.
Even taking all measures in the JOLTS report at face value, the labor market has cooled substantially over the past year. The number of job openings has fallen 14.1%, quits have fallen 15.7%, and layoffs have risen 17.8% over the past year—all moving back towards more typical pre-pandemic rates.
An indicator of worker power known as the labor leverage ratio—that is, the ratio between quits and layoffs—has fallen 28.4% over the year, from a maximum of 3.35 to 2.40. It is more than half of the way back to its pre-pandemic level of 1.7. That ratio tends to be high when workers can easily exchange their jobs for better ones, and low when businesses can easily replace workers.
Taken together, JOLTS indicators suggest that the U.S. labor market is still a job seekers’ market, but that the post-pandemic hiring frenzy and Great Resignation have come to a close and that labor markets are well on their way to returning to the regular course of business.
