Posted by: Mark McMullen | July 9, 2013

Encouraged Workers on the Way?

To date, there has been little improvement in the supply of labor during our economic recovery. Typically, healthy labor supply growth is a key part of the cyclical boost that helps us bounce back following downturns. Workers who stop looking for new employment due to a lack of job opportunities can become encouraged when their prospects improve, and many choose to reenter the labor force.

We are unlikely to feel any tangible improvement in the pace of the expansion without such a cyclical boost to labor force growth. Fortunately, labor markets are now exhibiting below-the-surface signs that they are becoming tighter, suggesting that some long-awaited improvement in our labor supply may be just around the corner.

The labor force participation rate has not stopped falling since the onset of recession. This is not surprising given that job opportunities still remain quite scarce, and that workers from the baby boom population cohort are retiring from the workforce en masse. The current declines in labor force participation are fully consistent with an unemployment rate that remains north of 7% (see Chart). The labor market would likely need to tighten beyond its full employment level before the drag posed by retiring workers could be fully offset, and the decline in labor force participation fully stemmed.


Despite the downward pressure that the aging population is putting on labor force participation, a much-needed acceleration in labor force growth looks imminent. Overall, the job market still remains very loose. However, for some segments of workers, the job market has tightened, with opportunities having become both more plentiful and more lucrative.

For some types of jobs, growth in the number of firms looking for new workers has largely absorbed the surplus of qualified job seekers. As job market segments tighten up, finding qualified workers becomes more difficult and costly. With the number of job openings growing relative to the number of job seekers, hiring firms face incentives to be less picky about whom they hire and to increase the pay they offer to compete with other employers. This represents music to the ears of discouraged workers.

One way to measure of the tightness of the labor market is to look at the amount of effort firms need to expend posting job listings in order to fill a vacancy. According to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, the nationwide number of job openings posted per new hire has recovered back to the peak level it reached during the housing boom (see Chart). State-level data suggest growth in job listings has been even stronger in Oregon than in the typical state (see

Job Openings per Hire

Obviously, not all job market segments have tightened up, as evidenced by the army of unemployed Oregonians still waiting in the wings. In particular, job prospects remain soft for workers who have been unemployed for longer than six months.

The job market has become bifurcated; with unemployment rates among the short-term jobless having returned to normal, while workers who have been unemployed for an extended period are still struggling mightily to find work. The differing labor market conditions are clearly evident in wage data, Growth in wages and salaries has recently accelerated among industries and occupations for which labor markets have tightened. No such improvement has been seen in pay rates among jobs for which long-term unemployment is prevalent. For example, over the past three years, wage gains among healthcare workers have been twice as large as those seen among construction workers.

Unemp Duration

Although labor market improvements are not yet universal, they are now at least noticeable, with some segments of the job market having become balanced once again. The extent to which out-of-work Oregonians respond to these improved conditions by jumping back into the labor force will go a long way toward determining how much, if any, acceleration in the pace of expansion we will see going forward.


  1. Since the beginning of the recession in 2007, the U.S. labor force participation rate has dropped sharply. Some of this decline reflects long-term demographic trends and other factors that helped push down the participation rate before 2007. But the recent withdrawal of prime-age workers from the labor market is unprecedented and may reflect a cyclical component that could reverse as the labor market recovery solidifies. The return of these workers to the labor force would partially offset the longer-term demographic influences and potentially cause the participation rate to bounce back (Daly et al. 2012, Van Zandweghe 2012). Moreover, the increase in the number of active jobseekers in the labor force associated with higher participation could slow the decline in the unemployment rate.

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