Chart of the Day: The Hiring-Firing Gap Shrinks

The U.S. has a hiring problem. As explained before, the trouble with the labor market isn't that so many workers have been fired over the past 18 months -- it's that so few have been hired. Although in 2008 and 2009, layoffs began to surpass new hiring, net job gains have been fairly regular since 2010. The problem is that they've been too small in number to make a meaningful dent in the unemployment rate.

Below is a chart that shows this problem pretty clearly. It contains data updated through April, based on a report released today by the Bureau of Labor Statistics:

hires separations 2011-04.png

These lines show the rates of hiring and firing -- the number of peopled hired or fired each month as a percent of total employment. Ideally, the green line lies well above the red one, which would indicate that lots more jobs are being created than destroyed.

You see that approximate relationship as the chart begins until about mid-2007, when the labor market began to run into trouble. These lines then remained close together for a while, until early 2008.

At that time, the rate of separations began to far exceed the rate of hiring. That's when the red line was consistently above the green one. The giant gap that formed is what millions of lost jobs look like.

In early 2010, that relationship shifted and the hiring rate again began to surpass the separations rate. Some funky results are shown in middle of the year, due to temporary Census jobs. When that effect wore off, towards the end of 2010, you again see the green line above the red one.

But throughout 2011 the hires rate wasn't generally very far above the separations rate. To be sure, we see nothing like a reverse of the gap that was created in 2008 and 2009, when millions of jobs were lost. Of course, this is what you would expect, since the number of net jobs we've seen created this year has been so small.

This data only extends through April, which means that we don't know how it looks after May's ugly jobs report. You can expect that the green line (hires) came down farther and that the red one (separations) may have even risen above it. The unemployment rate has been ticking up for two months straight.

From this chart, you get an idea of what we need to see for unemployment to decline quickly: another big gap between the two lines where the green one is on top. At this point, that outcome doesn't look particularly likely. Given the recent weakness of the U.S. economy, we'll be lucky to see the green line even modestly above the red one in the months that follow.