U.S. Labor Market Tightness Varies by Region

Chairman Bernanke's testimony raises several interesting questions. How tight is the labor market? Why is it becoming tighter? Has it remained as tight since his testimony in February? Does labor market tightness vary across the United States? Fortunately, the Bureau of Labor Statistics (BLS) performs the Job Opening and Labor Market Turnover Survey (JOLTS). The JOLTS is a relatively new dataset (started at the end of 2000) that tracks the rates of hiring, job openings (or vacancies), layoffs, and separations in the labor market.

Labor market tightness is characterized by low unemployment and high vacancies. Trends in labor market flows since 2004 show that job openings have been rising faster than hiring. The level of hiring has gone up, while that of separations (or firings) has flattened out. The combination of more job openings, more people leaving the unemployment pool because of increased hiring, and fewer workers losing their jobs because of decelerating separations have caused the labor market to tighten. The tight labor market is evident in the unemployment rate, which has been declining since the end of 2004. These two charts show that the labor market is getting tighter because of an increase in job openings (more vacancies) and a decrease in unemployment caused by more hiring and a flat rate of separation. The labor market flows have been steady during 2007—thus, labor market tightness is still an issue, five months after Chairman Bernanke's testimony.

One aspect of current labor market conditions is that its strength is not distributed uniformly across all regions in the United States. In particular, states in the Midwest have had relatively weaker job markets than the rest of the nation. Breaking down the JOLTS data into four regions allows economists to see how labor markets are performing in different areas. The table below shows the unemployment rate and labor market tightness by Census region. Labor market tightness is measured by taking the number of people unemployed in the region and dividing by the number of job vacancies. A lower number indicates a tighter labor market and fewer unemployed workers per job opening.

The table indicates that the Midwest has the loosest labor market, while the fast-growing South has the tightest labor market. The general trend has been for markets to become tighter, especially in the South and West, both of which have grown faster than the Northeast or the struggling Midwest.