Businesses are saying that they are having more trouble finding qualified workers, the latest sign that the U.S. labor market is tightening.
Reports of employers facing widespread difficulty finding help could factor into the Federal Reserve’s decision-making about when to raise short-term interest rates from near zero for the first time since 2008.
A number of statistics from separate sources tell the same story.
The number of advertised job openings hit 5.1 million in February, the most recent month for which data from the Bureau of Labor Statistics is available. That was the most since January 2001, adjusting for seasonal variations. There were only 1.7 unemployed workers for each job opening in February, the lowest such ratio since before the recession began in late 2007.
The average duration of job vacancies hit a record high in February, at almost 27 days per job, according to the calculations of Dice Holdings, a career website company.
More small businesses reported that labor quality was their biggest problem in the National Federation of Independent Business’ economic trends survey of 575 business owners in March. Twelve percent listed labor quality as their top problem, up from single digits in recent years.
In the New York area, businesses report that it’s getting harder to find workers with even basic skills. More than half of executives said that they faced moderate to great difficulty finding workers who were punctual, reliable or able to speak English in a survey of 150 businesses conducted by the Federal Reserve Bank of New York in April.
Of the people who do apply for jobs, a surprising number don’t even show up, according to a survey of 400 businesses conducted by staffing company Express Employment Professionals.
Nearly a fifth of firms say that more than 15 percent of applicants do not show up for interviews, and the ones who do are often obviously unprepared. “People really need to understand that there is — I shouldn’t say an art — but there is a need to be quite articulate and quite well-dressed if they’re going to go out and get a job,” said Bob Funk, CEO of Express and a former chairman of the Federal Reserve Bank of Kansas City. “We just haven’t taught our young people how to do that.”
The increasing troubles that businesses face finding labor factor into the Fed’s deliberations in a few ways.
The central bank’s monetary policy committee, which is charged with maximizing employment while also keeping inflation steady, receives updates from the 12 regional banks about business conditions in their districts, including hiring issues.
Federal Reserve Chairwoman Janet Yellen named job openings among the items on her labor market “dashboard” of statistics to watch in setting monetary policy in March 2014, along with other measures that are more focused on workers, such as the unemployment and labor force participation rates.
In recent months, most worker-side statistics have shown significant improvement. The unemployment rate has fallen to 5.5 percent from 10 percent at the worst of the recession. The number of people out of work for longer than 26 weeks, while still high, has fallen by more than a million in just the last year. Broader gauges of underemployment have declined.
While it appears from those numbers that the jobs outlook is nearly back to normal, there is significant doubt because a large number of U.S. workers became discouraged during the recession and stopped looking for work altogether, thereby falling out of the official measures of unemployment.
Gauging just how many of those workers might return to the labor force, versus how many are retirees who are not going to come back even if the economy strengthens, is a crucial task facing the Fed. If they overestimate the scale of this “shadow unemployment,” they could leave rates low for too long, risking too-high inflation or bubble conditions in financial markets.
One estimate from the Hamilton Project, a nonpartisan think tank, places the number of jobs still missing from a full recovery at 4 million.
Signs that businesses are facing trouble finding qualified workers could provide Yellen and company with additional clues about whether that number is too high or too low. If companies really can’t find people who speak English, that could be a sign that labor markets are tight.
Nevertheless, the Fed should not over-interpret what businesses are saying, said Dean Baker, co-director of the Center for Economic and Policy Research, a left-of-center think tank in Washington.
“If they really have difficulty finding people they need, we would expect them to see them raising wages,” Baker told the Washington Examiner. Wages were also listed on Yellen’s dashboard, but wage growth has only slightly outpaced inflation in recent years.
“I wouldn’t doubt that there has been some tightening,” Baker said, but, “I wouldn’t say that they’re really having trouble finding people until they start” raising wages.
