Employment churn and job quitting a sign of macroeconomic strength
A measure of economic confidence -- people don't tend to quit their jobs in tough labor markets because they're worried they won't be able to find a new one. During the downturn, monthly quits plunged to a record low of 1.6 million in September 2009, down from more than three million per month before the recession began. The fact that they're rising again suggests that workers may finally be seeing signs that the job market is improving.
Quits matter for another reason, too: They're a component of "churn," the regular comings and goings that are a critical element of any healthy job market. When people leave jobs in search of higher pay and new opportunities, they open up opportunities for others. When they stop quitting, those opportunities dry up.
"For workers who are unemployed, if there's less churning of jobs, it's harder to get on the merry-go-round," University of Chicago economist Steven Davis said in a Wall Street Journal article in February.
Churn is a big deal. A new paper, Hiring, Churn and the Business Cycle by Edward Lazear of Stanford and James Spletzer of the Bureau of Labor Statistics finds that during the recent recession, 80% of the drop in hiring was due to low levels of churn, rather than reduced job creation. The authors estimate reduced churn shaved two-fifths of a percentage point off GDP for the duration of the recession.
WSJ: Ben Casselman, Good Jobs News: More People Are Quitting.
Churn, defined as replacing departing workers with new ones as workers move to more productive uses, is an important feature of labor dynamics. The majority of hiring and separation reflects churn rather than hiring for expansion or separation for contraction. Using the JOLTS data, we show that churn decreased significantly during the most recent recession with almost four-fifths of the decline in hiring reflecting decreases in churn. Reductions in churn have costs because they reflect a reduction in labor movement to higher valued uses. We estimate the cost of reduced churn to be $208 billion. On an annual basis, this amounts to about .4% of GDP for a period of 3 1/2 years.