The geographic distance between labor supply and labor demand is a very intuitive barrier to liquidity. This can involve regional disparities in job opportunities, as well as transportation limitations or challenges. Connected technologies and the massive embrace of remote and flexible work arrangements have reduced geographic barriers in many companies and for entire sectors or job categories. But it remains true that labor supply in Wichita, Kansas cannot fully and immediately access all labor demand in Manhattan.
Mismatches between the skills demanded by employers and the skills possessed by job seekers can hinder labor market liquidity. When job openings require specialized skills that are not readily available in the workforce, employers struggle to fill those positions, leading to prolonged job vacancies and reduced labor market liquidity.
Lack of Training and Education:
Additional training and education can resolve skills mismatches. But inadequate access to those training and education programs limits the ability of workers to acquire new skills or to adapt to changing job market demands. A lack of opportunities for upskilling or reskilling can reduce labor market liquidity by trapping workers in occupations with declining demand or limited growth prospects.
Tangential to barriers to upskilling and reskilling, occupational licensing restricts labor supply from fluidly moving toward certain types of labor demand. While licensing aims to protect third parties from negative externalities (ensuring work product meets certain public safety and quality standards), it also limits the labor supply. Excessive or unnecessary licensing presents a major source of illiquidity, limiting job mobility and artificially reducing labor supply in certain fields.
Inflexible Labor Regulations:
Labor regulations like strict employment protection laws or cumbersome dismissal procedures heighten the costs of hiring and add friction which can disincentivize hiring and discourage labor market mobility. When it is difficult for employers to adjust their workforce or adapt to changing market conditions, it can hinder job creation and mobility, limiting labor market liquidity.
Restrictive Employment Agreements:
Restrictive employment agreements like non-compete clauses, non-disclosure agreements, and non-solicitation agreements can hinder labor market liquidity by imposing constraints on the mobility and flexibility of workers. These restrictive agreements can significantly limit the pool of available labor supply and demand for given workers.
Perfect market function depends on information transparency—fully informed buyers and sellers. When one party in a transaction possesses more information than the other, that exclusive information throws off the balance of power. This imbalance occurs on both sides of the job market. Despite the expansion of the sophisticated online job posting/seeking ecosystem, job seekers may still not have complete knowledge of all available job opportunities. Moreover, they frequently lack transparent information on compensation, obstructing optimal decision-making processes. Employers also cannot see the total available pool of labor, and struggle to get reliable visibility into candidates’ skills and experience levels.
Discrimination and Bias:
Discrimination based on factors such as gender, race, ethnicity, or age creates barriers to labor market liquidity. Biases in hiring practices or unequal treatment in the workplace can hinder equal access to employment opportunities and impede the efficient flow of labor into available opportunities.
Looking beyond traditional data to understand job market liquidity
Analysts, investors, policymakers and business decision-makers all look to the job market for insights on what the economy is doing at a macro and micro level. Now, more than ever, they’re getting mixed signals that paint a confusing picture, with traditional job market metrics increasingly deviating from conventional paradigms. Resolving this dissonance requires a deeper look—beyond the relative tightness of the job market. Decision-makers need to examine liquidity in order to understand how the job market is functioning right now. A more granular understanding of the economic, societal, and policy factors that are impeding or enabling the efficient function of the job market enables a much more holistic and confident forecast of where the job market is headed.
The challenge is that liquidity can’t be captured in a single metric, nor is it well-represented in conventional BLS job market data. Increasingly, decision-makers are seeking out alternative data sources that reveal additional dimensions (as well as more real-time information) that can bring aspects of labor market liquidity into the light. Combining these alternative data sources with traditional job market data can paint a much more complete and current picture of the complex and rapidly evolving dynamics shaping the job market—and the broader economy.
Jobs 101-Part 4: Using alternative data to reveal deeper job market insights
The fourth and final part of LinkUp’s Jobs 101 series will look at the world of alternative job market data: various sources of alternative job market data (and how this alternative data provides richer and more accurate information); the unique metrics that can be derived from alternative data; and how forward-thinking leaders across business, policy, research and more are leveraging the predictive power of alternative data to drive faster and smarter decisions.