The Labor Shortage is Real But Don’t Blame Quiet Quitting

Jared McEntaffer - November 21, 2022
The Labor Shortage is Real But Don’t Blame Quiet Quitting

The US labor market has spent most of 2022 ignoring any warnings about economic slowdowns. Employment growth and job creation have been at multi-decade highs through much of the post-pandemic period, and labor markets remained stubbornly robust through the first three quarters of 2022.  There are signs that the combined weight of interest rate hikes, rising production costs, falling productivity, and the prospect of looming recession may have finally slowed the pace of hiring in the fourth quarter, but any widespread slowdown will not fully appear until 2023.

The post-pandemic recovery of the US labor market has been unprecedented. Monthly employment growth at the national level was consistently higher than they have been at any time in the last fifty years. National employment growth averaged 4.2% over the first three quarters of 2022, but the labor market has started turning. Unusually, Silicon Valley appears to be leading the way into the downturn, with tech giants such as Meta (the parent company of Facebook), Twitter, and Amazon announcing tens of thousands of layoffs. The construction and real estate sectors, which are traditionally more likely to first signal labor market slowdowns, have also slowed in recent months as higher interest rates have put the breaks on housing demand, but the official data are running behind the news at this point and it may take some time for the direction change to be reflected in the employment data. In any case, we forecast 3.1% employment growth for 2022, but we anticipate  the economy will spend most of 2023 making up lost ground and end the year flat.

Labor Market Summary and Forecast

The Labor Shortage is Real | Dakota Institute - Labor Market Summary & Forecast
Source: Dakota Institute, Wells Fargo Economics, BLS

South Dakota’s employment picture was similar to the nation’s but was both more muted and more extreme.  South Dakota’s employment growth from 2021 through Q3 2022 averaged 2.2% versus 4.3% at the national level, and the state’s unemployment rate fell by 1.2 percentage points versus 3.2 percentage points for the US overall. In truth, South Dakota fared better than the nation during 2020 so there was less ground to make up, and the relatively slow employment growth reflected that fact.

On the other hand, though, the biggest story for South Dakota in 2022 was the worker shortage and labor market tightness. In fact, the limiting factor on employment growth appears to have been labor availability rather than potential economic slowdown or rising interest rates.

South Dakota Monthly Job Openings, New Hires, and Quits

The Labor Shortage is Real | Dakota Institute - Job Openings, New Hires & Quits
Source: Dakota Institute, BLS

The Bureau of Labor Statistics (BLS) produces the Job Openings and Labor Turnover Survey (JOLTS) data series that reports on state-level employment dynamics. The tight labor market can be seen by job openings outnumbering new hires in all but two months since January 2017. Market tightness increased even further in mid-2020 as job openings grew at their fastest rate since the survey began in 2001. Employers were desperate for workers and hiring rose initially. By Q4 2021 the number of new hires had fallen to 19,300 per month from an average of 20,400 per month in Q1-Q3. Hiring would remain at this slightly lower level up until Q3 2022 when it picked up slightly.

One way to assess labor market tightness is to look at the ratio of job openings to unemployed workers. When this ratio is greater than one, it means there are more job openings than there are unemployed workers to fill open positions. Throughout 2022 the ratio of job openings to unemployed workers at the national level was roughly 2 to 1, i.e. there were 2 open jobs for each unemployed worker. In contrast, South Dakota’s job opening to unemployed worker ratio during 2022 was 3 to 1.

If that wasn’t enough, South Dakota’s unemployment rate in 2022 has been lower than at any time in the last fifty years. This bears repeating. South Dakota’s unemployment rate in 2022 was lower than at any time in fifty years, and there were three job openings available for each unemployed worker. A partial solution to labor shortages can be found in workers taking on additional jobs, but this isn’t an ideal solution and there may be little capacity for it in South Dakota at this point.

BLS previously published an annual labor market review that reported on multiple job holders. The most recent report looked at 2015 labor market data and found the share of workers in South Dakota who held multiple jobs was 9.1%, the highest in the nation. South Dakota also had the highest share of multiple job holders in 2014, 2013, 2012, 2011, and 2010.

To recap, historically low unemployment, historically high demand for workers, and more people are already working multiple jobs than in other states. Employers are right. There is a labor shortage, and it may be holding the state economy back from its growth potential. The labor shortage isn’t caused by people sitting on the sidelines, though. The labor shortage is a people shortage.