Lower Turnover is Propping Up Weak Job Gains

The July employment report last week showed that the labor market remains far from robust, but the weakness isn’t just in the moderate number of new jobs being added by employers.

Analysts already have noted that many of the 162,000 jobs created in July were in low-paying retail and restaurant work. It also matters how much of the net payroll gain came from an increase in new hires versus fewer departures of existing workers.

Every month, a few million workers separate from their employers, while several million others are brought on. It’s the difference between these two that produces the net gain or loss in jobs.

“If the net is driven more by hiring rather than separations, that shows a healthier labor market,” said Sophia Koropeckyj, an economist at Moody’s Analytics.

That, however, has not been the case.

The Labor Department’s monthly turnover report, the latest of which was released Tuesday, has been finding that the number of layoffs, resignations and other separations is running well below the average before the recession.

That means companies, some having cut to the bone, are holding onto more of their existing workers.

Yet hiring hasn’t returned to anywhere near pre-recession levels. Since early last year, hiring has ranged from 4.2 million to 4.5 million every month, but before the recession, gross new hires were 5 million to 5.5 million monthly.

The upshot is that the job market just isn’t as dynamic as it was before the recession.

Koropeckyj pointed to several factors: The aging workforce is clinging to its jobs, companies have implemented labor-saving technologies and there are fewer startups adding as many workers as before.

Are these long-term factors? Koropeckyj thinks so.

“I really cannot see where we’re going to get back to where we were before the recession,” she said.