The exceptionally tight labor market in Idaho has left many employers hard-pressed to fill job openings. The monthly vacancy yield rate – the number of hires each month relative to the number of job openings at the end of the previous month – provides a barometer for employers’ ability to fill openings while its inverse provides an implied number of months to fill an opening.

An unprecedentedly tight labor market

Well before the COVID-19 pandemic and the economic disruptions it brought, the Idaho labor market would have been characterized as “tight,” but once businesses and the economy at-large reopened, the excess demand for workers relative to their supply only intensified.

One key barometer of a labor market is the ratio of job openings, or vacancies, to the unemployed, which is how macroeconomists typically define a labor market’s “tightness.” The larger the number, the more job openings are chasing after a fixed number of idle workers. For high ratios, we would typically expect to see wages rise as employers are forced to compete for limited talent; conversely, for small ratios, we would expect wages to fall as workers are forced to compete for a limited number of jobs.

Figure 1 plots the monthly job openings-to-unemployed ratio for Idaho as well as the United States for 2001-2021, adjusted for seasonality effects. For the entire sample, the average labor market tightness was about 0.81 openings for every unemployed Idahoan. Throughout 2021 the ratio hovered between 1.5 and 2, and by year’s end it reached a record 2.18.

Note: Job openings are for total nonfarm jobs.
Source: Idaho Department of Labor, U.S. Bureau of Labor Statistics.

As the labor market shifts toward excess demand for workers and competition for them among employers heats up, we usually see the rate at which employers fill their job openings decline[1] with employers often having to spend more resources on recruitment activities.

Microlevel data on individual vacancies and their fill rate, or yield, are not readily available, but aggregate measures from the U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) can give us some idea of the general ability of employers in the state to hire the workers they need. The monthly survey measures job vacancies taken at the end of the calendar month, while hires and separations are measured as monthly additions/subtractions from an employer’s payroll. For this report, vacancy yield rate is defined as the number of hires in a month expressed as a share of the number of vacancies at the end of the previous month.[2]

Note: Job openings and hires are for total nonfarm jobs, not seasonally adjusted.
Source: U.S. Bureau of Labor Statistics

Figure 2 plots the estimated Idaho vacancy yield rate for 2001-2021. Unsurprisingly, the rate is countercyclical — rising during periods in which the labor market is slack and competition amongst employers softens, such as during the 2001 and 2007-2009 recessions, and falling during periods where the labor market is tight and employer competition intensifies. The period average was 1.24 hires for every vacancy the prior month. The annual average for 2021 was 0.73 and by year’s end it was 0.52, the lowest value on record for the state. The current labor market appears to be tighter than any other period in recent memory.

Comparing the vacancy yield rate for the state to the national average, the two series are more closely aligned than the job openings-to-unemployed measure, with Idaho’s yield rate typically above the national average. The national vacancy yield rate has similarly touched historic lows in 2021. The annual average last year was 0.68 compared with the 2001-2021 average of 1.14, with December 2021 reaching a record low of 0.46.

Another informative way to interpret the vacancy yield is to take its inverse, which provides an implied number of months to fill a vacancy. For example, if a typical Idaho employer hires two people every month for each vacancy they had at the beginning of the month, we would expect a typical opening to be filled in half a month’s time. If the vacancy yield rate is countercyclical, the implied months to fill a vacancy would be procyclical, rising as the labor market tightens and falling as it becomes slack.

Figure 3 takes the inverse of each time series in Figure 2, showing the implied months to fill a vacancy. The graph shows the implied time to fill an opening has steadily increased over time, rising when the labor market heats up and falling when the market cools down. At the end of 2021, the vacancy yield rate implied that job vacancies were taking about two months to be filled on average for the United States and Idaho alike, compared with a 2001-2021 monthly average of about 0.94 and 0.87, respectively.

Note: Job openings and hires are for total nonfarm jobs, not seasonally adjusted.
Source: U.S. Bureau of Labor Statistics

Industry differences in the vacancy yield rates

While aggregate movements in the vacancy yield rate are informative of the general state of the labor market, industry-level movements illustrate substantial differences across economic sectors. These result from such factors as the degree of labor specialization and substitutability within an industry, their degree of cyclical nature within the general economy and industry differences in job matching efficiency, among others.

Table 1 lists the available private sector industries which JOLTS measures nationally, with average monthly measures of the vacancy yield rate and implied months to fill a vacancy for the periods 2001-2019, 2020-2021 and end-of-year values for 2021.

In the pre-pandemic time period, already there were considerable differences across industries. At one extreme, construction had an average vacancy yield rate over 3 and an implied months to fill a vacancy of 0.3 or just a little over a week. At the other end of the spectrum, finance and insurance had a vacancy yield rate of 0.67 and about 1.5 implied months to fill a vacancy. A general observation is that industries with more specialized workers with fewer available substitutes, such as information, finance and insurance, and health care and social assistance, will tend to fill vacancies at a lower rate than industries with less specialized and more substitutable ones, like retail trade, arts, entertainment and recreation, and accommodation and food service.

Table 1: Vacancy yield rates and implied months to fill a vacancy by industry

In the wake of the COVID-19 pandemic, all industries appear to have experienced a declining vacancy yield rate, with some experiencing acute declines in relative terms. Comparing 2020-2021 with the pre-pandemic period, construction saw the greatest relative decline in the vacancy yield rate (-55%) followed by arts, entertainment and recreation (-48%); mining and logging (-43%); transportation, warehousing and utilities (-38%); and nondurable goods manufacturing (-37%).

By the end of 2021, nearly all industries were down 50% compared with their pre-pandemic averages, with finance and insurance having the longest implied months to fill a vacancy of just over four months while health care and social assistance came in second at more than three months.

Conclusion

Among the many labor market indicators of interest is the rate at which employers can fill existing job openings or the vacancy yield rate. This variable tends to be countercyclical to the labor market, falling when the market is “tight” and rising when it is “slack.” Unlike other measures of labor market tightness, Idaho’s vacancy yield rate appears to track with the national average more closely but like other labor market indicators, it points to the current labor market being exceptionally tight with only one job vacancy being filled a month for every two an employer had at its start.

Much of the variation of Idaho’s vacancy yield rate can be explained by its industrial composition and the national industry trends. Over the past two years, every industry has experienced some degree of increased difficulty in filling job openings, with particularly hard-hit ones including mining and logging; construction; nondurable goods manufacturing; transportation, warehousing and utilities; and arts, entertainment and recreation.

Matthew.Paskash@labor.idaho.gov, regional economist
Idaho Department of Labor
(208) 236-6710 ext. 4249

[1] In textbook search-and-matching models of labor markets, this arises from network (congestion) externalities; i.e., more jobs postings from employers reduce the probability a worker will match with any one employer.

[2] This definition has some obvious issues including the omission of hires from within a company and hires that may not correspond to a job opening the previous month. However, this measurement is still informative and provides an approximate measure of the average yield rate for individual job openings.