In our last article on unemployment, we discussed the BLS’s JOLTS survey, which attempts to characterize the job market by looking at the total supply of unemployed workers and the number of open jobs. In that article we argued that the ratio (and its recent journey below 2.0 workers/job) portended good things for workers (more wages) and perhaps bad things for companies (compressed margins due to wage pressures). Today we’ll discuss the quits to separation ratio, an even better gauge of economic mood.
The problem with the openings to seekers ratio? Sure, it reflects the economic mood, because like we mentioned – companies don’t generally hire when times are very tough. Still, it’s a bit removed from the animal spirits of the job market.
The Quits to Separation Ratio
This ratio is interesting because instead of showing the economy from a corporation’s perspective as in the number of job openings available, it shows how secure individuals are in their belief they can find a new job. At an n=1 level, a quitting worker is a signal that some individual has “had enough” of a job, or has found a better job, or has enough resources to continue being unemployed or stick with a job search. In aggregate, many workers quitting versus being fired or laid off would mean individual workers have more sway – either savings have increased, opportunities have increased, or (less likely) employers have alienated a large number of employees.
The numbers, as predicted, reflect favorably on our hypothesis – as the job market has improved, so has this measure of employee confidence in the market:
We put our inflation adjusted wage number in the same graph so you can take a look – but the interesting data point is that recently the economy eclipsed 50% of all job separations being quits. This doesn’t quite match March of 2006 where a whopping 60.1% of all separations were quits (last article’s estimated labor market peak of March 2007 was a strong 58.3% quits), but it beats the paltry 37.1% we experienced at the height of the Great Recession in April of 2009.
And yes, people were still quitting then, it’s true!
Regardless, we think you’ll find the quits to separation ratio an interesting indicator – and we hope to bring this analysis to you more often in the future.