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Why people quitting their jobs can be good for the economy
Economists are awaiting Thursday's Job Openings and Labor Turnover Survey to see if the rate of people quitting their jobs for something better reflects a bump in the kind of turnover that could portend greater wage increases in the months ahead. - photo by Kevin Dobbs
Quitting equals winning at least in a recovering U.S. labor market.

When Americans voluntarily leave their jobs, it's often to pursue better opportunities. Those moves free up positions for recent graduates eager to begin full-time careers or for unemployed workers waiting on openings to emerge.

Confidence tends to mount alongside such developments, economists say, creating a virtuous cycle.

Many economists, notably including Federal Reserve Chairwoman Janet Yellen, pay close attention to the U.S. Labor Department's so-called "quits rate," a measure of how frequently Americans willingly leave their jobs. The rate, which excludes retirements, is important because when it increases it signals that wage growth, a vital component of a healthy economy, is on the horizon.

Thursday's Job Openings and Labor Turnover Survey will show the latest quits rate. Economists both inside and outside of the Fed will be looking to see if it reflects the kind of positive workplace churn that benefited Rick Weiss.

A stock analyst for about 15 years, Weiss left his research job in April for a different company and a different type of position that, he says, was both financially and intellectually attractive. He was recruited to become head of investor relations at Ambassador Financial Group, a banking advisory firm in Allentown, Pennsylvania.

"More people are getting recruited now, I think, and that is a good sign that employers are serious not just about hiring, but about taking steps to find the right fit for the job," Weiss said in an interview.

Weiss, who has a daughter in college, also cited anecdotal evidence of conviction among newer job hunters. He said many of his daughter's friends who have recently graduated are landing jobs. "They might not think it's the perfect position, but they are finding pretty good work," he said. "I do think that is better than just a few years ago."

The 'quits rate'

The nation's quits rate in August the most recent month for which data is available stood at 1.9 percent. That marked a notable improvement from the 1.2 percent rate registered in September 2009, the low point during the aftermath of the 2007-08 recession that paralyzed employers and resulted in double-digit jobless rates.

During strengthening economic periods, optimistic employers hire more to fuel expansion. They often boost wages to attract talented and experienced workers such as Weiss away from competitors. The quits rate measures this activity.

"It is certainly a very important indicator of a labor market that is functioning well," Lawrence White, an economist at New York University's Stern School of Business, said in an interview. "If people feel confident in their ability to leave their current jobs for new ones, it usually means they are clearly seeing more opportunities and getting offers with better compensation."

Indeed, White says, many Americans make the biggest income advances of their careers when they join new companies for higher paying jobs.

White also noted that a heightening level of voluntary turnover usually results in a more flexible labor market, one that better adjusts to changes in the economy and matches Americans to jobs best suited for them. In turn, these workers are more likely to generate stronger results for their employers, bolstering overall productivity.

Jobs and interest rates

All of that explains why Yellen and her fellow monetary policymakers at the Fed look beyond headline grabbing jobless rates and payroll data to determine whether the economy is headed toward full employment and higher inflation the two key economic measures they are tasked with tracking and whether it is time to raise interest rates to ensure inflation does not climb too quickly.

The government's latest monthly jobs report, released Friday, showed that employers added a seasonally adjusted 271,000 jobs in October and that unemployment dipped to 5.0 percent from 5.1 percent the previous month. That puts the jobless rate on par with a level the Fed says represents full employment.

While a low unemployment rate is important, it does not paint a full picture of the labor market's status. A strong economy hums along when more people are not just employed, but are increasingly productive and making more money.

Wages, however, have stagnated for years, suggesting that many employed Americans struggle to advance or get meaningful raises. The October jobs report found that hourly wages rose 2.5 percent from a year earlier, better than the modest 2 percent average over the multi-year economic recovery. That is a positive sign, economists say, but they need more data to know if it signals a trend.

That additional information is found within quits rate data. While the rate in August was favorable relative to the lows following the economic downturn, it has tapered off this year and is shy of a level that would point to the consistently strong wage growth that would both fan the flames of inflation and empower Americans to keep up with price increases.

"Janet Yellen pays close attention" to the quits rate, "and so I pay close attention to it," Scott Brown, chief economist for Raymond James, said in an interview.

Underlying trends

The quits rate has held at 1.9 percent for five consecutive months. Prior to the recession, between 2000 and 2006, the rate averaged 2.1 percent. The Labor Department reported 2.7 million quits in August and that number of voluntary resignations has held between 2.7 million and 2.8 million for the past 12 months. Prior to the recession, nearly 3 million Americans quit their jobs on a monthly basis.

Economists do not anticipate a surge in the quits rate because even before the recession, job quits had moderated due to an aging population and more two-income households. Older workers tend to change jobs less frequently than younger ones and changing employers is more complicated in a two-income household if the new job requires moving.

As such, Brown said, economists merely want to see the quits rate tick back up to the early 2000s level. "I do think the job market is improving, but we want more than good headline numbers; we're really interested in strong underlying trends," he said.

For much of this year, Yellen and company have debated whether to raise short-term interest rates, which have rested near zero since the aftermath of the recession to rev up the economy through borrowing and investment.

Policymakers say they are eager to return interest rates to more normal levels to protect savers and prevent risky borrowing that creates asset bubbles. Bank regulators, for example, have in recent weeks expressed concerns that currently robust levels of automobile lending could result in unhealthy levels of defaults.

Guessing game

Fed policymakers next meet in December. Yellen has said economic data in November likely would influence any decision on whether to begin raising rates then. The quits rate is all but sure to factor into Fed analyses.

For now, the Fed's next move remains a guessing game. The true strength of the job market remains similarly difficult to gauge.

Weiss, the financial industry veteran who started a new job earlier this year, says his personal experience suggests the jobs picture is brightening. But, at the same time, he said there is clearly room for more improvement.

"It certainly seems better than, say, five years ago," he said. "But I can't say I think it's better than it was before the recession."
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