Job Finding Rates Are Falling

Recent labor market data point to softening in the labor market. Notably, the unemployment rate of 4.2 percent in August was up 40 basis points from the previous year. Recent work by Simon Mongey and Jeff Horwich from the Minneapolis Fed shows that this rise in the unemployment rate was mostly explained by a decline in the job finding rate, or the fraction of unemployed workers who become employed each month. In this week's post, I shed more light on this issue by exploring the characteristics of unemployed workers who are experiencing greater difficulties finding a new job.

To calculate the job finding rate, I use data from the Bureau of Labor Statistics' Current Population Survey, which contains information on the level of unemployment by duration of unemployment and characteristics such as age, race, reason for unemployment, and occupation and industry. The job finding rate is computed using the same methodology as Robert Shimer's 2005 paper on unemployment and vacancies, and it represents the share of the previous month's unemployment level that became employed in the current month. In the analysis that follows, I look at changes in the three-month moving average of the job finding rate versus its level from a year earlier.

Table 1 below shows changes in job finding rates for unemployed workers according to their previous occupations, and we see there is a wide disparity across occupations. For example, while the national average has dropped 2.3 percentage points versus a year ago, production workers have seen job finding rates fall by nearly 15 percentage points over the same period. Management, business and financial operations, and professional and related occupations also saw job finding rates deteriorate more than the national average.

In contrast, job finding rates declined less than half a percentage point from a year ago for service occupations, a category which includes health care support, public protection, food preparation and serving, housekeeping and janitorial workers, and personal care. Job finding rates were higher than their year-ago levels for workers in office and administrative support occupations as well as construction and extraction occupations. This disparity suggests that labor market conditions have loosened more for higher-compensated production, management and professional jobs compared to front-line services jobs.

Table 2 below shows changes in job finding rates for unemployed workers according to their reason for unemployment. Compared to the national average, workers who voluntarily left jobs have seen larger declines in job finding rates versus a year ago. The same is true for workers who have never been previously employed.

In contrast, both unemployed workers who lost their previous jobs and workers reentering the labor force have seen smaller declines in job finding rates versus the national average. However, the second and third columns of Table 2 also reveal that, despite the year-over-year decline, these two categories of workers have higher job finding rates versus the national average, which partly offsets the negative impact versus a year ago.

The final breakdown of job finding rates that we'll examine is by age (shown in Table 3 below), which unlike the previous two tables is not sorted by year-over-year change. The sharpest declines have been for the 65 and over job seekers, where job finding rates fell by more than 10 percentage points from a year ago, and where job finding rates are the lowest amongst all the age groups. While workers aged 25-34 saw the next biggest decline in finding rates — down more than 5 percentage points from a year ago — their job finding rates remain above those of workers aged 45 and up in level terms. The slowdown in labor demand over the past year may be having a particularly negative effect among workers aged 65 and up who are not ready to retire. However, it should be noted that job finding rates are volatile for this segment of the population, so the current slowdown may not be indicative of a sustained trend.

This analysis highlights differences in the vulnerability of various groups of job seekers to declining job finding rates, as well as mitigating factors blunting the impact of a softening labor market for some groups. Job finding rates may be declining faster for higher compensated occupations, where workers may have more resources to withstand periods of unemployment. Job finding rates also appear to be declining more sharply for job leavers and new entrants, two groups which have higher-than-average rates of job finding. There could be cause for greater concern for job seekers close to retirement age, where job finding rates both are lower than the national average and fell more than the national average over the past year, although the volatility of job finding rates is high for this demographic.

Views expressed in this article are those of the author and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.