The job market's ‘game of musical chairs’ may be slowing — but workers still have power, say economists

There are signs the hot job market is cooling — but workers still have bargaining power for now, according to labor economists.

Job openings, a barometer of employers’ demand for workers, saw a near-record monthly decline in August. Openings fell by 1.1 million to 10.1 million, according to U.S. Department of Labor data issued Tuesday — a monthly decrease eclipsed only by April 2020, in the early days of the coronavirus pandemic, when they fell by roughly 1.2 million.

The Federal Reserve is raising borrowing costs for consumers and businesses to pump the brakes on the U.S. economy and reduce inflation. Central bank officials hope that a cooling labor market will translate to lower wage growth, which has been running at its highest pace in decades and contributes to inflation.

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Job openings started to surge in early 2021 as Covid-19 vaccines rolled out and the economy began to reopen more broadly. Workers were able to quit for other opportunities amid ample job postings and as employers competed for talent by raising pay. That job-hopping trend came to be known as the Great Resignation.

“I think this is exactly what the Fed wants to see,” Julia Pollak, chief economist at ZipRecruiter, said of the reduction in job openings. “The tension leading to this cutthroat game of musical chairs [among workers], they want that eased.

“And there are finally signs this is happening.”

There were 1.7 job openings per unemployed worker in August, down from nearly two openings per unemployed in July. Fed Chairman Jerome Powell has cited this ratio as one that officials would like to see fall as an indicator of labor market cooling.

That said, job openings are still high by historical standards, meaning workers have ample opportunities, labor economists said. Openings hovered around 7 million before the pandemic; they peaked near 11.9 million in March 2022.

“I’d say the job market still leans toward workers,” said Daniel Zhao, lead economist at Glassdoor. “But because things are cooling off, we can’t guarantee that will continue moving forward.”

The level of voluntary quitting among workers ticked up by 100,000 people from July to August, to almost 4.2 million, according to the Labor Department’s Job Openings and Labor Turnover Survey. Quits are a gauge of worker confidence and sentiment, so the slight increase and historically high level suggest workers remain in the driver’s seat, Pollak said.

Most workers who leave their current jobs do so for employment elsewhere, economists said. They typically get a bigger pay bump than those who stay in their current roles: a 7% annual boost for job switchers in August versus 5% for job stayers, according to the Federal Reserve Bank of Atlanta.

Meanwhile, layoffs remain low and have increased only modestly as employers try to hang onto the workers they have, economists said.

Even though workers still seem to have the upper hand, they may want to proceed more cautiously going forward relative to quitting and switching jobs due to the prospect of a further moderation in the labor market, Zhao said.

“Last year, the job market was strong enough that it was easier for folks to quit without having something else lined up,” Zhao said. “I think the situation now is much softer. Anyone looking for a new job has to evaluate things on a company-by-company basis.”