Author: Andrew Berger-Gross
Interpreting the ups and downs of the labor market often requires understanding concepts that are surprisingly complex. For example, it is easy to imagine that our labor pool consists of two distinct groups — unemployed persons looking for jobs and employed persons working for a living. Many scholarly models of labor market activity operate according to this simple assumption, and certain workforce development programs focus their efforts on unemployment insurance (UI) recipients, who are (by definition) unemployed job seekers.
It turns out that this focus on unemployed job seekers, while easy to comprehend, bears little resemblance to how the labor market actually operates. Economists have long known that most jobless people who become newly employed in a given month were not looking for a job at all — in other words, they were “not in the labor force,” according to the Bureau of Labor Statistics' definition. Likewise, most people who leave employment in a given month exit the labor force rather than becoming unemployed job seekers (and, by implication, they likely do not collect UI benefits); they may choose not to look for a job due to retirement, family obligations, schooling, disability, or just an unwillingness to seek work.
More recent research from economists at the Federal Reserve Bank of San Francisco highlighted two more oft-ignored facts about labor market behavior. For one, the unemployed aren’t the only job seekers competing for open positions; significant numbers of workers who are already employed also engage in “on-the-job search” for the purpose of finding a new job. Additionally, the vast majority of workers switching from job to job were not actively looking for a new job; rather, they appear to have been recruited (or “poached”) directly by their new employer.
Several of these findings can be confirmed in the North Carolina context using data from the Current Population Survey (CPS). The CPS follows up with respondents for several months after their first interview, allowing us to track who is entering — and leaving — employment in our state.
The figure below shows that the vast majority of employed North Carolinians in a given month are holding the same job as in the previous month. (Another large portion of the employed are newly entering the CPS sample, meaning we have no information about their previous status. Some of these may include new arrivals to North Carolina from out of state.) Among those who leave employment in a given month, the majority exit the labor force, while a smaller portion become unemployed job seekers.
A closer look at those entering new jobs in a given month provides more insight into the complexity of labor market transitions. During the past several years, the largest proportion of workers entering new jobs in North Carolina came from out of the labor force, with the second-largest proportion consisting of previously employed job switchers, and a smaller number of previously unemployed job seekers. As the economic recovery has picked up steam, even more new employees have been drawn from out of the labor force, while even fewer new employees entered from the ranks of the unemployed.
Unfortunately, the CPS does not collect information about “on-the-job search,” preventing us from drawing conclusions about the job-seeking activity of employed workers. However, the survey does provide us with sufficient information to shed light on an essential feature of labor market dynamics in North Carolina.
One important takeaway for concerned stakeholders in the workforce and economic development community is that, although unemployed job seekers (including those collecting UI benefits) are an important population to target for re-employment services, this population represents a relatively small fraction of overall employment activity. Employers are more likely to draw from workers who already have jobs, jobless individuals who aren’t actively seeking employment, and (potentially) the out-of-state labor pool than to tap unemployed North Carolinians when looking to fill job vacancies.
General Disclaimers:
The Current Population Survey (CPS) estimates are subject to sampling and nonsampling error. Note that the state-level CPS estimates are not directly comparable to state-level employment estimates from the Local Area Unemployment Statistics (LAUS) program due to differences in methodology. Any mistakes in data management, analysis, or presentation are the author’s.