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Businesses and school districts say they want to hire. So why aren’t they? It’s an important puzzle, and anyone interested in the answer should focus on what’s happening in the manufacturing sector.
Consider the job numbers released last week, which weren’t just disappointing, but also confusing. Outside of leisure and hospitality and personal services, the private sector shed 157,000 payroll jobs in April. And while the weakness in sectors such as home building and motor-vehicle manufacturing can be attributed to shortages of specific inputs such as lumber and microprocessors, that doesn’t explain why hiring in the rest of the economy was so poor even as consumer spending is still at all-time highs.
The latest Job Openings and Labor Turnover Survey, or Jolts, from the Bureau of Labor Statistics only deepens this confusion. The total number of posted openings hit its highest level ever in March, up 8% from February. That’s a remarkable number—and the high-frequency data from Indeed’s Hiring Lab suggest that the demand for workers has continued to rise since the March Jolts data were collected.
Without any additional context, this would imply that the U.S. economy is running incredibly hot. So why hasn’t hiring picked up to meet demand?
One possibility is that the job market isn’t as hot the openings data imply, especially relative to the number of Americans who want jobs. Excluding people who said they were on temporary layoff and expected to be recalled—but including the millions of Americans who temporarily dropped out of the labor force—there were about 1.43 unemployed Americans per job opening in March. That’s down from 2.8 jobless per job opening back in April 2020, but far higher than the ratio of 0.7 that prevailed in the year before the pandemic.
Another possibility is that some jobless workers are staying out of the labor force because they can earn more from unemployment benefits than from the jobs that are available. While that may be true in some places and in some cases, the biggest payroll gains in April were in the lowest-paying sectors. Moreover, those were the sectors that also saw the biggest wage increases, which suggests that businesses have been able to draw workers back by offering better pay.
The impact of enhanced unemployment insurance could also be obscured by the pandemic itself. At first, the virus increased the physical risk of many occupations and also limited access to child care for many working parents, thereby reducing labor supply. But as the pandemic recedes thanks to progress on vaccinations, Americans who had been unwilling or unable to work should return to employment as long as demand holds up. The improving public health situation may have offset much of the impact of enhanced jobless benefits on leisure and hospitality employment over the past couple of months, for example.
Jed Kolko,
chief economist at Indeed, said that measuring the relative importance of these countervailing forces is probably impossible “without hindsight and near-academic-level analysis.”
The data on job openings by sector only deepens the puzzle. The biggest growth category, by far, has been manufacturing, particularly nondurable goods manufacturing, which includes everything from packaged food to pharmaceuticals and plastics. Job openings posted by producers of nondurable goods have more than doubled compared to pre-pandemic levels.
Postings are also up at leisure and hospitality businesses—mainly in arts and entertainment—and at state and local governments, especially public schools. But for much of the rest of the economy, job openings are only about where they were before the pandemic, if not substantially lower.
Manufacturing jobs pay reasonably well, especially compared to being on unemployment. That makes the failure of manufacturing businesses to hire more workers all the more puzzling. Total payrolls are still down about 4% compared to before the pandemic, even excluding the idiosyncratic troubles in motor vehicles.
Another way to look at this is to look at how many people are hired each month by different types of businesses relative to the number of open jobs listed during that month. If workers were less willing to accept certain kinds of jobs, the number of hires per opening in the past few months would be lower than before the pandemic. That’s happened a little bit, but mostly in manufacturing, health care, business services, and the government. Monthly hiring for leisure, hospitality, and retail has actually increased relative to job openings.
It’s possible that some manufacturing companies, such as those in the vaccine supply chain, are trying to expand quickly but haven’t been able to attract to the right mix of workers because of the lack of specialized skills. Reallocating workers from one industry to another is always slower than simply rehiring people who were laid off when the sales outlook deteriorated. But if that were the issue, wages ought to be rising as the workers with the desired skills let companies bid for their labor. So far, that doesn’t seem to be showing up in the data. Rapid wage growth has instead been confined to leisure and hospitality businesses.
Finally, consider another puzzle: the number of people who are quitting their job, but not retiring. That measure has essentially returned to its pre-pandemic peak, which suggests high confidence among the employed that they can find something at least as good if they’re unhappy where they are. Quitters can’t get jobless benefits.
In most sectors, the quit rate remains well below the prepandemic peak. Workers at hotels and restaurants were 12% less willing to abandon their job in March than they were at the peak in the summer of 2019, for example, even if they are much more willing to quit than they were a few months ago.
Once again, the big exception is manufacturing, where the number of workers quitting is at its highest level since before the downturn of the early 2000s. There are far fewer Americans working in manufacturing now than then, however, which means that the share of manufacturing workers quitting is at its highest level in decades.
To the extent that the quit rate has returned to its prepandemic level, that progress is due almost entirely to the surge in manufacturing quits, which have helped offset the substantial drops in quits in much of the rest of the private sector.
It’s not clear what’s driving the surge in openings and quits in the manufacturing job market, especially because it isn’t being matched by the data on industrial production or factory orders, much less by the numbers on payroll employment. But manufacturing seems to be where a lot of the labor market action is—not restaurants, retailers, or other low-paying sectors potentially affected by changes to government benefits.
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