Philly Fed Study Explains the JOLTS Separations Rate to Employment Growth

November 23rd, 2012
in econ_news, syndication

Econintersect: In its analysis of BLS Job Openings and Labor Turnover Survey (JOLTS), Econintersect has consistently stated that they have "not been able use the hire rate or the separation rate (or a combination thereof) to help in understanding future jobs growth."

A Philly Fed study has now provided the background why separations do not correlate to jobs growth.

Follow up:

The extract from the Philly Fed:

Anecdotal evidence suggests that labor market conditions surrounding American workers had been worsening in recent decades, even before the severe recession in 2007-2009. However, studies by academic researchers have not found clear evidence that worker turnover has increased over time. In “Labor Market Anxiety and the Downward Trend in the Job Separation Rate,” PDF (388 KB, 7 pages) Shigeru Fujita shows that there is a long-run downward trend in the separation rate into unemployment and examines several factors that help account for this long-run decline. He argues that the aging of the labor force has played an important role for the trend. He also explains, using an economic model, how the declining separation rate can result from workers’ response to the increased sense of job insecurity.

The study concludes:

This article discussed possible sources of the long-run downward trend in the job separation rate.

  • First, the aging of the workforce is one of the main reasons for the trend: An older labor force implies that the labor force, on average, has a stronger attachment to employers and thus lowers the separation rate.
  • The second source studied by Davis and co-authors is declining business volatility: Decreased uncertainty makes it less likely that job separation occurs.

These two explanations do not directly address the increased sense of job insecurity among American workers.

  • The third explanation is based on the trade-off between wages and job security: Fear of losing skills makes workers more willing to accept lower wages in exchange for keeping their current jobs.

This explanation reconciles the coexistence of stagnant wage growth and the lower job separation rate. An important general point of this last explanation is that gauging job insecurity based solely on the level of labor turnover can be a misleading exercise.

Read the complete study at the Philly Fed.


Steven Hansen



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