The Big 5: Traditional Job Market Metrics
The unemployment rate measures the percentage of the total labor force (defined as those actively employed or actively seeking work) who are currently unable to find jobs. Unemployment is the hallmark job market metric used to understand and predict economic health. High unemployment typically portends a contracting or slowing economy, signaling that employers are reducing their workforce and/or slowing hiring to address declining revenue and growth. Low unemployment is generally understood as a signal of a strong and growing economy, where employers are hiring and wages are often rising.
Nonfarm payrolls (also referred to as nonfarm employment or total nonfarm payrolls) are traditionally used to define the size of the U.S. labor force. Nonfarm payroll measures the total number of people employed in the United States—excluding the following types of workers:
- Farm workers
- Private household employees and domestic household workers
- Self-employed workers and sole proprietors operating without registered business incorporation
- Non-profit employees
- Active military service members
- Government-appointed officials
- Employees of the Central Intelligence Agency, National Security Agency, the National Imagery and Mapping Agency, and the Defense Intelligence Agency
As the name suggests, this metric historically excluded farm and domestic workers to eliminate the messiness presented by seasonal and part-time labor, unpaid family labor, and the majority of farmers being self-employed or sole proprietors.
Labor force participation rate
The labor force participation rate represents the percentage of the working-age population (typically individuals aged 16 and older) who are either employed or actively seeking employment and available to work. This metric helps gauge the proportion of people who are actively engaged in the job market.
High participation traditionally signals a strong labor market and correlates with economic growth. Lower participation can be influenced by discouraged workers who have given up on actively searching for jobs, and is often thought of as a lagging indicator of economic slowing.
However, low participation may also represent individuals seeking to expand skillsets through full-time education, workers opting for early retirement, or other factors that temporarily or permanently remove them from the supply side of the job market. For example, through the last several years, fears around the health risks of COVID-19 led many workers to sit on the sidelines of the job market. Others were forced out of the job market to care for children, elderly parents, or to address their own health needs.
Employment rate/Employment-to-population ratio
Related to labor force participation, the employment rate refers to the percentage of the working-age population (typically age 16+) that is currently employed. The employment rate indicates the utilization of supply (workers) in the job market. Like labor force participation, a high employment rate is generally understood as a positive economic indicator. The employment rate is also frequently used to compare employment levels at a demographic level—by gender, age group, location, etc.—to understand trends and challenges in the job market.
The Job Openings and Labor Turnover Survey (JOLTS), conducted by the BLS, is not a single metric, but rather a monthly report that includes the following:
- Job Openings: The total number of job openings posted during a specific month. Job openings are typically used as the key indicator of labor demand in the job market.
Hires: The number of hires made by employers during the surveyed month. Hires reflect the pace of job creation and signal that companies are seeing or anticipating growth and expanding their workforce.
Total Separations: The total number of workers who left their jobs, either voluntarily (through quits) or involuntarily (through layoffs or discharges), during the surveyed month. This is a key measure of turnover in the labor market.
Quits: A subset of separations, quits are workers who voluntarily left their jobs during the surveyed month. The quits rate is often used as an indicator of workers' confidence and leverage in the job market.
Layoffs and Discharges: The other component of separations—the number of workers who were laid off or discharged (fired) by their employers during the surveyed month. This metric can gauge overall business conditions.