The U.S. Department of Labor releases monthly employment information, and these reports have received quite a bit of attention in recent months because of their tie-in to inflation. Investors and economists are aware that the Federal Reserve is closely monitoring these reports to get a sense for the impact of rate hikes on the real economy — slower labor growth suggests the increased likelihood of rate cuts. (The latest job data from November indicates that the United States added about 200,000 jobs and that unemployment is at 3.7%, but that is not the subject of this post.)
What many observers gloss over is the remarkable dynamism that these reports reveal about the U.S. economy. The roughly 200,000 jobs added in November represents a pretty small slice of the labor force. Multiply it by 12 to get the annualized figure, and it comes to just 1.4% of the total civilian labor force. But that number hides a high level of churn because it is the difference between two much larger numbers. During the month of November, about 2.6 million jobs were created, and about 2.4 million were lost, with the roughly 200,000 difference between those two numbers being the number of jobs created. The quarterly changes are illustrated in the below chart from the U.S. Bureau of Labor Statistics.
Consider what this is telling us about the economy. If our economy creates 2.6 million a month, that comes to over 30 million jobs per year, or 19% of the total labor force of about 168 million. At that rate, the total labor force takes just over give years to completely turn over.
Of course, many employees hold on to their jobs for much longer periods of time. These long-tenured employees are offset by those working in jobs in cyclical or declining industries as well as those with high rates of turnover, such as fast food and retail, some of which turn over more than 100% of their labor force every year.
This is the result of the U.S. having a dynamic labor force. Employers tend to react quickly to changing economic conditions as well as evolving requirements in the labor force. If the demand for paper manufacturing goes down, employers will reduce their staffs — quickly. And they will ramp up quickly in response to increasing demand, such as the recent uptick in demand for home services. The same is not true in Europe, where employees stay in their jobs for much longer, partially due to labor laws making it difficult to lay employees off. Of course, this also makes it much more difficult to be hired on to a job in Europe.
We have a ruthless job market that is not suited to everyone, particularly those who have difficulty transitioning to different industries. But it also keeps out economy highly adaptable to changing conditions and is one of the reasons for our continuing economic strength.
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