U.S. Labor Market Snapshot | September 2023

Executive Summary

• The US labor market is showing signs of softening as job openings decreased from 9.1 million to 8.8 million over June to July
• There were 2.4 million more U.S. job openings than workers available, while labor market tightness measures such as job openings to job seekers remain elevated
• U.S. wages grew by 0.24% MoM and by 4.3% YoY, however there are still 99.3 million Americans not in the labor force, higher than the pre-pandemic level of 95.1 million
• The share of unemployed Americans who took less than 5 weeks to find a job increased by 1.5% MoM
• The role of AI on employment level and wage changes by occupation remain uncertain as it will take time to observe tangible impacts

U.S. Labor Market is showing signs of gradual cooling

The U.S. Federal Reserve Bank’s rate hikes have finally impacted U.S. labor markets as evident by the recent increase in the unemployment rate from 3.5% to 3.8% over July to August. As the cost of living continues to rise, Americans are returning back to the U.S. labor force. The personal savings rate has decreased by 64.2% over the last two years as the U.S. labor force participation rate increased from 62.6% to 62.8% over July to August.

Labor market tightness which is measured as the ratio of job openings to job seekers remain elevated, however it has decreased by 1.7% MoM and -24.1% YoY respectively.?

U.S. job openings decreased from 9.1 to 8.8 million over June to July, a decrease of 3.7% MoM and 22.4% YoY, indicative of a slightly cooling labor market.

U.S. Employers could be more efficient in hiring

The job openings to job seekers ratio, which is one of the measures to assess the labor market tightness, continues to remain elevated at 1.5 compared to the pre-pandemic level of 1.2. The fill rate, which is the ratio of hires to job openings, was at 0.65 in July 2023 in comparison to 0.86 in February 2020. A fill rate greater than one indicates employer hiring efficiencies, while a fill rate less than one indicates it is harder for employers to fill vacancies.?

Although job postings on Indeed have declined by 15.2% over the past year, employers on average are taking 44 days to fill a vacancy according to the Society of Human Resource Management (SHRM).

Job seekers have experienced mixed sentiment in today's labor market. The share of unemployed Americans who took less than 5 weeks to find a job increased by 1.5% MoM; however, it decreased for those who took 15 to 26 weeks to find a job by 7.0% MoM. Comparing the numbers to pre-pandemic levels, the share of unemployed Americans who took less than 5 weeks to find a job decreased by 4.1% between February 2020 and August 2023, while the share of those unemployed 27 weeks and over increased by 5.7%.

There are 2.4 million more U.S. job openings than workers available

What does this mean for Employers? Although job openings remain elevated, Americans are looking for multiple sources of income as the personal savings rate remain low. There is an inverse relationship between the personal savings rate and multiple job holders as a percent of the employed.

Workers are looking for opportunities to earn income outside of their primary job. Inflation remains at the top of mind for many Americans given that rent, food, and gas prices are high.

Separations decrease MoM while quits decrease & layoffs increase

Total separations – the summation of quits, layoffs/discharges and other separations decreased by 3.7% from June to July, indicative of a cooling labor market. Interest rates are expected to increase until the U.S. Federal Reserve Bank reaches its 2% inflation mandate. According to the Phillips Curve, there is an inverse relationship between inflation and the unemployment rate as evident with the most recently reported BLS data.?

Higher interest rates have impacted the U.S. labor market

Voluntary Attrition

Quits represent voluntary attrition, whereby workers are consciously choosing to leave their employers. Information experienced an increase in voluntary attrition MoM and YoY by 14.6% and 17.0% respectively.

Involuntary Attrition

Layoffs & discharges represent involuntary attrition. Financial Activities experienced an increase in involuntary attrition MoM and YoY by 75.0% and 40.0% respectively, while education and health services and arts, entertainment, and recreation both experienced a decrease in layoffs & discharges for both periods which are in line with seasonality demand for occupations such as teachers and recreational workers.

Wage growth remains modest

Financial Activities experienced the largest gain in average hourly earnings YoY, while leisure & hospitality experienced the largest gain in employment levels YoY. According to the Federal Reserve Bank of Atlanta's Wage Growth Tracker, job switchers have experienced a 7.8% decline in wage growth over the past three months, while job stayers experienced a 1.7% decrease over the same time.

What does this mean for workers and employers?

American workers including the employed and unemployed are aware of the bargaining power that seems to be shifting between themselves and employers. The conversations on work arrangements (hybrid, remote, on-site), compensation, and mental health are still a priority as we navigate the post-Covid world. Furthermore, conversations on culture, values, and diversity, equity, and inclusion (DE&I) will remain important as new mandates have been introduced by the U.S. EEOC on the use of AI in the human capital and recruiting industries.

Exposure to AI by Occupations

The Pew Research Center published a comprehensive report in late July on AI exposure to workers. A list of fifteen selected occupations were assigned a level of exposure to AI by low, medium, and high.

Among the fifteen selected occupations identified in the report, dishwashers, who were identified as occupations with low exposure to AI experienced the largest gain in median wage from 2012 to 2022, while chief executives experienced the smallest increase in median wage. In terms of employment growth, interior designers experienced the largest gain from 2012 to 2022, while childcare workers experienced the largest decrease.

The irony is that child care is one of the top reasons why Americans are not entering the labor force as cited by the regularly released U.S. Census Bureau's Household Pulse Survey, however it has experienced a contraction in growth over the past ten years.

Concluding Thoughts

As we head into the fall, it will be imperative that employers understand the ongoing challenges employees and job seekers are facing with respect to the ongoing externalities that resulted from the pandemic.

There has been a true paradigm shift in today's labor market as more Americans are closely examining their relationships with work and leisure.

The application of technologies such as AI are still generating buzz, however there are limitations to it as well. The landscape is changing for how AI is intentionally or unintentionally applied in all industries, especially within the online recruitment marketing space.

Algorithms inherently are biased, and it is imperative for all users which includes buyers and sellers to be aware of the externalities, positive and negative as we move into the future.