Peter Cappelli is HRE’s Talent Management columnist and a fellow of the National Academy of Human Resources. He is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School of the University of Pennsylvania in Philadelphia. He hosts “In the Workplace” on SiriusXM Channel 111 with Dan O’Meara. He can be emailed at [email protected]

Forgive me for talking again about the state of the job market and misperceptions that get repeated in the press, picked up mainly by consultants and lobbyists, and that then become accepted as fact. Here we are addressing the claim that there are more jobs than there are people to fill them. I’m seeing this statement daily in press announcements, workshop advertisements and so forth.

The problem with this claim is that it rests on something like an engineering view of the labor market: that it is like a giant machine made up of lots of employers who themselves are little machines who have fixed numbers of jobs with highly specific requirements that have to be met or the machine does not function. So the unstated conclusion behind such assertions is that the economy is somehow in big trouble because we don’t have enough people to get the work of the economy done.

The reality of the job market is not like that. There is a reason we call it a job “market” and not, say, a job bank with deposits and withdrawals. That is because it really is a market where prices rise and fall to allocate labor. As we all know, “prices” in the form of wages have not really been rising much overall to accommodate the tight labor market, but other adjustments have more clearly taken place to deal with the fact that it is harder to hire, such as lowering job requirements (more felons are getting jobs, and employers are backing off drug tests, especially for marijuana) and spending more effort on recruiting.

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All of us who have taken introductory economics classes will remember the surprise in learning that we really do not run out of scarce goods and raw materials like oil or titanium. Instead, prices rise, supply declines in response to higher prices, and producers look for oil and titanium that is more expensive to extract. Diamonds end up being very expensive because demand is high and supply is low, but there is no diamond shortage.

Back to the labor market. The claim that there are more jobs open than people to fill them comes from this calculation: If we total up all the vacancies that are posted (an imprecise exercise because there is no standard criterion for identifying what is actually a vacancy) and we then count all the individuals who meet the government definition of unemployed—actively seeking work—we find that the former exceeds the latter. So, why doesn’t that mean that we have more jobs than people to fill them?

First, because the candidates whom employers want are not the unemployed. That might well be understandable, at least initially: If you can’t find a job in this economy, what’s wrong with you? Data from the U.S. Census shows that the vast majority of people who take new jobs already have one, and most of those report that they were not actively seeking a new job when they made the switch. One point to note about this is that the reason we have so many vacancies is because we are filling jobs held by people we could not retain. It’s not new jobs. Those are a drop in the bucket in the 66 million vacancies filled each year.

Because the candidates employers want are the currently employed, not the unemployed, it doesn’t matter to most employers how many unemployed candidates there are.

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Second, there are still a lot of people who want jobs who are not counted as unemployed because they are not “actively searching.” How many? The equivalent of 7.1% of the labor force. That group includes discouraged workers who had searched for a job but had not done so this past month because they had no luck, and part-time workers who cannot find a full-time job. That group is just about twice as big as the 3.6% of the workforce who are officially unemployed.

A different way to look at how tight the labor market is would be to examine what percentage of the population is actually working. It’s roughly 63%, down from almost 67% a decade ago. That drop is equivalent to about 10 million people.  No, that 3 percentage-point drop is not accounted for by baby boomer retirement—most retirees say they want to keep working in some way, in any case.

None of this suggests that the economy is not doing well (it is), or that it is easy to hire (it isn’t). But we are not running out of people. There are still a lot who could work if we wanted to go get them, but most of the interest is still in hiring people who are already working.

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