Job Separation Rate Shows Economic Shifts

The unemployment rate receives considerable attention when discussing how the labor market has responded and improved since the Great Recession, but several other indicators shed some light on this issue as well. An Economic Synopses essay examines the components of the job separation rate for additional perspective on the labor market.

The job separations rate consists of two types of separations:

• Voluntary separations, or quits
• Involuntary separations, or layoffs and discharges

In the essay, David Wiczer, an economist with the Federal Reserve Bank of St. Louis, explains that these separations show how workers perceive the economy and how firms anticipate their staffing needs. “Workers who quit their jobs likely anticipate finding better work. Layoffs and discharges, on the other hand, bode poorly for the economy, as they demonstrate that firms are paring back staffing faster than can be accomplished simply by slowing hiring.”

Since 2000, the overall number of job separations has been relatively stable; it did not spike even during the Great Recession, the worst period of unemployment in the post-war period.¹ Wiczer noted, “Instead, the increases in the unemployment rate were largely driven by the rate at which workers found new jobs. That rate was very slow, as the number of hires plummeted during the Great Recession.”

Job quits have been relatively stable since 2000, accounting for more than half of all job separations until the Great Recession, when they fell drastically in lockstep with the decline in hiring. However, the overall separation rate did not follow the same downward spiral, as layoffs and discharges rose quickly.² While layoffs and discharges returned to trend level by January 2010, quits have remained depressed at about 15 percent below their prerecession level. Combined, these two paths account for the slight fall in the number of overall separations.

Wiczer noted, “A low level of quits implies that workers do not believe it is easy to find another job, which is consistent with the still-low level of hiring. However, half a decade after the recession, firms are not laying off existing workers. So can the labor market still be ‘bad’?”

Notes and References

¹ See the top chart for hires and separations since 2000.

² See the bottom chart for voluntary and involuntary separations since 2000.

Additional Resources

• Economic Synopses: Job Separation Rate Shows Economic Shifts
• On the Economy: Where Is the Slack in the Labor Market?
• On the Economy: The Recession’s Effect on Job Churn