By Gwen Kervin
Since March of 2022, the Federal Reserve has been raising interest rates in an attempt to cool inflation and slow the economy. However, so far, the effect on Utah’s labor market has been minimal. Constricted labor markets following the COVID pandemic caused employers to have a hard time filling open positions. Because employers struggled to find workers, a large gap developed in unmet labor demand. This elevated wages, which in turn lured marginal workers into the labor force, helping to fill some of the vacancies. While Utah continues to turn in job growth numbers, growth rates have come down from the highs experienced in 2021 and 2022, resulting in a reduction in the unmet labor gap. Because of this, any additional Fed rate moves could have a more immediate influence on the Utah labor market going forward.
To understand the magnitude of the job buffer created by unmet Utah labor demand, it is helpful to look at the ratio of job openings to unemployed workers. The correlation between the two provides a proxy for how much labor is or isn’t available to fill job vacancies. In weak economies, there can be more idled workers than the volume of job postings. Conversely, in strong economies, there are more job postings than available workers. A balance between the two would be an economy with one available worker per job advertisement. However, when the volume of job openings noticeably exceeds the measure of available labor (the unemployed), it can serve as a signal that the labor supply internally is not sizable enough to support job growth. For example, in the early part of 2022, Utah’s ratio increased to 3.5. This implies that for every 350 job postings, there are only 100 available unemployed Utah laborers to fill the positions.
If there are not enough workers internally to support growth, then attracting labor from outside the state is the needed remedy. Fortunately, Utah has been able to do just that as the state’s job growth remained at or above average through 2022 into the early part of 2023. However, as 2023 has progressed, the high ratio of job postings to workers has been moderating.
Historically, Utah’s vibrant economy has kept this ratio above that of the United States. In fact, the only time that it approached levels near those in the nation was during and immediately following recessions.
Prior to the pandemic, this ratio was well above that of the United States, but fell closer to levels seen in the rest of the nation in response to the economic pullback tied to COVID-era restrictions. However, soon after, the openings-to-unemployment ratio rose sharply, reaching 3.5 in January 2022. Although the openings-to-unemployment ratio is still at historically elevated levels, indicating elevated labor demand, it is clearly coming down. In July 2023, Utah’s job-openings-to-unemployment ratio was at 2.1, which is still noticeably higher than the U.S. rate of 1.5.
Job openings can come about either because an employer needs to fill an existing position that has become vacant, or because the employer has decided to create a new position. When employees quit their jobs to move to a new one, it creates churn in the labor market, but does not represent growth in jobs. The number of people quitting their jobs can be used to get an idea of what portion of overall job openings can be attributed to churn versus job growth.
In the United States, the number of people quitting their jobs in the pandemic’s aftermath increased and stayed elevated. This increase prompted a new catchphrase — The Great Resignation. It is only recently that U.S. quits have returned to levels more in line with pre-pandemic activity. Correspondingly, U.S. job openings also increased during the same period, indicating that a large portion of the overall job openings were due to churn rather than new, job-growth positions.
A different picture emerges when looking at quits and job openings in Utah. The level of job openings in Utah increased several years before the pandemic hit. Increased quits were a part of this increase, moving higher at the end of 2017 and reaching a pre-pandemic high in the beginning of 2019. Nationally, churn and job growth were mostly flat before the pandemic, with largely little story to tell.
Then the pandemic hit and created an instant recession. Recovery began shortly thereafter. Job openings went high in both the nation and Utah in the recovery period. Quits continued to remain low in Utah. On the other hand, quits across the United States began to rise. This largely says that in Utah the post-pandemic job openings increase was fueled more by job growth. Conversely, the national job openings seem fueled more by an overall shortage of labor which created a noticeable amount of labor turnover. Nationally, people were churning in search of better jobs and wages.
Recent job growth numbers point to a loosening in Utah’s labor market. Monthly job growth estimates have come down from the highs seen in 2021 and 2022. It was in negative territory for most of 2020, but by 2021, it turned positive, with an average growth rate of 5.0%. By 2022, Utah’s average job growth rate was 4.2%, still well above historic highs. For comparison, from January 1991 through October 2023, Utah had a 2.7% average job growth rate, which is more in line with the growth rates seen in 2023. Year to date, the state’s average job growth rate is 2.6%.
Utah’s tight labor market over the past several years has induced employers to raise wages to attract new workers, and it appears to have worked. Utah’s labor force participation rate, which accounts for those over the age of 16 who are either working or looking for work, has risen in the past year to 69.7% in September 2023. This is largely a full percentage-point increase in just the past half year. Given the population’s age distribution in Utah, a labor force participation rate close to 68.5% would point to a solidly employed labor force. A year ago, in September 2022, the labor force participation rate was at 68.8%.
Wages driven higher by the state’s tight labor market have induced marginal workers who typically remain on the sidelines to enter the labor market. Over the past year, groups that have historically seen lower labor force participation rates, including teenagers, older workers, and women with school age children, have been entering the workforce. Younger workers in Utah, between the ages of 16 and 19, have increased their labor force participation rates by 4.0 percentage points, while those over the age of 65 have increased their participation by 1.4 points. By comparison, teens in the U.S. have seen a decline in their participation rates. Older U.S. workers have increased their rates only slightly over the last year, and have yet to recover their participation rates from pre-pandemic levels. Working-age women in Utah, between the ages of 25 and 44, who might have stayed out of the labor force due to childcare needs, have increased their participation rates by 4.1 percentage points compared to U.S. women, who increased their participation rates by only 0.7 points. An overall tighter local labor market in Utah and a faster increase in average hourly earnings over the past year have encouraged higher labor force participation rates among these marginal workers in Utah than in the rest of the United States.
While marginal workers have helped to fill vacancies, recent job posting data indicates that employers are scaling back their demand for labor. While several of the industrial sector’s job postings remain aggressive in Utah overall, total job postings are down 11.3% from September 2022 to August 2023. Data from Lightcast, a job posting aggregator, indicates that unique online job postings over the last year have declined the most in the professional, scientific and technical services, and administrative support sectors. The educational services and transportation and warehousing industries also saw significant declines in the number of online job postings. Some of these decreases can be attributed to a natural pause in job postings following a dramatic increase in hiring as employers sought to rehire lost workers following the COVID pandemic. For example, both the educational services and professional, scientific and technical services sectors, which have seen a decline in online job postings, saw some of the largest increases in employment from the fourth quarter of 2020 to the first quarter of 2023.
Higher wages and spending power have kept demand for services elevated, leading to an increase in job postings in accommodation and food services and other services, which includes repair, maintenance, and personal services. The state’s growing population and vibrant economy continue to support the construction sector, which saw a 3.9% increase in job postings over the past year. Finally, the health and social assistance sector, which had a difficult time attracting labor post COVID and will only grow as the population ages, has seen an increase in job postings as well.
Tight labor markets in Utah have driven wages higher, luring marginal workers into the labor force, but there is evidence that Federal Reserve rate hikes have begun to loosen labor markets. The job buffer is declining, job postings are down, and job growth numbers have lowered to a more normalized level. However, there is still a healthy demand for workers in the accommodation and food services, construction, and health and social assistance sectors. Going forward, with the jobs gap reduced, the actions of the Fed are likely to have a more immediate impact on labor markets. The effects will have a stronger impact on broader U.S. labor markets, which have a smaller buffer and higher unemployment rates. However, higher interest rates could ultimately slow the Utah economy and soften labor demand going forward.