Hire Economics: Don't Read Everything You Believe

I’ve just read a bunch of economic reports, and can safely conclude the following:

• The unemployment rate is far below 4%
• If you're unemployed or under-employed there are 3.6 million open jobs you won't get by applying directly
• Quitting is a good thing if you're employed

Let me make the logical case for these seemingly illogical conclusions.

In September, the U.S. Department of Labor (DOL) issued their JOLTs report. I’ve been having sleepless nights anticipating their October report this week, but with the shutdown the report has been delayed. However, last month's report indicates an unsettling long-term trend - the total number of open jobs is declining. This is shown in the graphic, with total open jobs hitting a recent peak of 3.9 million in May 2013, but declining to 3.7 million in July. The delayed report for August will either confirm the current downward trend, indicating continued weakness, or reverse itself. Any uptick would be a good indicator for improved future hiring growth.

Unless new job growth accelerates, or the total number of open jobs stays above 4 million, the national unemployment rate is unlikely to decline in the near future. ADP’s recent report on new jobs created confirms this, with an estimate of only 166 thousand net new jobs being created in September. This monthly increase is pretty much in line with the average monthly rate of net new job creation for the past year. Unfortunately, net new jobs created needs to be well above 200 thousand per month for an extended period to bring the unemployment rate down substantially.

Hidden in the bowels of the JOLTs report is another important piece of data – the quit rate. This was brought to the surface in a recent Wall Street Journal article "Workers Stay Put, Curbing Jobs Engine." The author, Ben Casselman, points out a major cause for the lack of new jobs: people who have them aren’t quitting them at a fast enough rate. This suggests that for people with jobs, security clearly trumps opportunity. The quit rate according to the DOL was 1.7% in July vs. 2.1-2.2% in strong economic periods. This low quit rate has a negative effect on new job creation of about 100-200 thousand jobs per month. A higher quit rate increases job "churn," since as more people quit, more people need to be hired to replace them. A low quit rate reduces this churn. That's why job turnover and quitting is sometimes a good thing.

There was some positive news in the DOL data. While the national unemployment rate was 7.3% in August, it was only 3.5% for those who are over 25 years of age and who have a BS degree. For high demand talent the unemployment rate was even lower, around 1-2%. This is an estimate, but reasonable considering the fact that few companies can fill their tech jobs fast enough, if at all.

Using this economic data as background, let me summarize the case for what initially seemed to be counterintuitive opening conclusions.

For high demand candidates, the unemployment rate is so low there is no reason for them to apply for a job, since some recruiter is likely contacting them first. However, too many of these “passive” candidates play it too safe, and don't fully consider the opportunities that are available when called. Their focus is often too short term, emphasizing compensation and security over personal growth and development. Few of these people appreciate that there is significant risk associated with staying in a job where they're not growing. In fact, the risk associated with stagnation and the loss of future job growth could be greater than the risk of changing jobs. That's why quitting for the right reasons helps everyone by increasing churn.

I believe that the reason so few of the 3.6 million open jobs get filled every month is that some machine is mixing and matching the skills and experiences listed on the resumes received to some job description filled with a suspect list of skills and experiences. So if you’re not a perfect match, you’re not likely to get a call. That's why I believe applying for a job directly is a waste of time for most people. It's also why I make a big deal about networking and applying through the back door. The probability of getting a job this way is at least 20 times better than applying directly since the basis if the assessment is on performance and potential, not skills and experienced.

So if you have a job, quitting might be a good thing. If you are actively looking for a job, applying directly is probably not a good thing, but real networking is. And the unemployment rate is not as high as everyone has been led to believe, unless you're looking for a job. I suspect there are some flaws in this theory of Hire Economics, but we seem to have a bottleneck in thinking somewhere that needs to be broken. A good case could be made it's in Washington.

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Lou Adler (@LouA) is the CEO of The Adler Group, a full-service talent acquisition consulting firm. His latest book, The Essential Guide for Hiring & Getting Hired (Workbench, 2013), covers the Performance-based Interviewing process described in this article in more depth. For instant hiring advice join Lou's LinkedIn group and follow his Wisdom About Work series on Facebook.