The Labor Market Paradox: How Hiring and Unemployment Can Rise Together

The simultaneous rise in hiring and unemployment traces back to two core dynamics: shifts in workforce participation and heightened voluntary job exits. The Bureau of Labor Statistics (BLS) defines unemployment strictly-people are officially jobless if they lack work but actively seek it, while the labor force participation rate captures those either employed or actively looking according to BLS definitions. When more people re-enter the job market after a break, they temporarily swell the unemployed count even before finding new roles. This participation rebound, combined with robust hiring activity, creates the paradoxical headline figures.

Crucially, voluntary quits have surged to 3.3 million-a 228,000 monthly increase-signaling worker confidence and mobility. Employees aren't being laid off en masse; instead, they're leaving jobs seeking better opportunities, which fuels the hires count. The JOLTS data shows hires held firm at 5.3 million despite falling job openings, meaning displaced workers are finding replacements quickly. This churn reflects a fluid labor market where mobility, not dislocation, drives turnover.

However, this positive narrative is tempered by measurement realities. The BLS household survey methodology omits certain jobless individuals, like those who stopped searching, potentially understating true unemployment. Meanwhile, declining job openings (down 941,000 annually to 7.7 million) hint at slowing labor demand growth. Thus, while high quits and steady hiring paint a picture of dynamism, the weaker openings trend and systemic exclusions prevent us from fully extrapolating this momentum.

Labor Market Churn: Hiring Slowdown vs. Persistent Turnover

The labor market continues its mixed performance into 2024, with JOLTS data revealing significant churn alongside slower job creation. As of October 2024, monthly hires and total separations each stood at 5.3 million jobs, indicating ongoing movement in the workforce, though the nature of that movement is evolving. Job openings fell to 7.7 million – a 941,000 decline from a year earlier – suggesting employers are creating fewer new positions despite the high level of activity. Quits, reflecting voluntary departures, surged to a record 3.3 million, up 228,000 from the prior month, underscoring heightened worker confidence and mobility. Meanwhile, layoffs and discharges held steady at 1.6 million, suggesting mass cutbacks aren't currently the primary driver of job separations.

This pattern points to underlying labor market resilience, as the stability in layoffs contrasts with the significant annual drop in openings. The sheer volume of hires, even at a lower level than last year, demonstrates that businesses are still actively filling positions, just fewer of them. However, the surge in quits is a major concern: when millions leave jobs voluntarily, it forces employers to compete more aggressively for workers, often leading to wage hikes to attract and retain talent. This persistent voluntary turnover is a key risk factor for triggering a new round of wage-driven inflation, complicating the Federal Reserve's dual mandate.

The JOLTS definitions clarify this activity: hires represent new job starts, quits are voluntary exits, and separations encompass all job exits, including layoffs. This data source, distinct from the BLS unemployment rate derived from household surveys (CPS), provides a more granular view of labor market fluidity. While the CPS tracks who is employed or unemployed, JOLTS reveals how dynamically jobs are being created, filled, and exited. The elevated quit rate, in particular, signals a worker-friendly environment where individuals feel empowered to leave their current roles, potentially fueling competitive salary demands across industries. This tension between a slower pace of new job creation and high voluntary movement creates a unique inflationary pressure point that policymakers and businesses must carefully monitor.

Historical Parallels and Durability Assessment

Building on our analysis of current labor market dynamics, let's examine how today's separation patterns differ from historical recoveries. The BLS JOLTS survey shows post-pandemic separation rates have remained elevated compared to prior recoveries, though the composition has shifted according to historical data. While previous economic rebounds typically featured declining separations alongside falling unemployment, today's concurrent high hiring and stubbornly elevated joblessness reveals a different story.

This divergence stems from structural mismatches in worker skills and geographic locations according to BLS analysis. Unlike past recoveries where displaced workers could relatively quickly re-enter the labor force, today's productivity-driven shortages mean employers are actively competing for scarce qualified talent. High quit rates now reflect workers pursuing better opportunities rather than desperation, while persistent unemployment indicates systemic gaps between worker capabilities and emerging job requirements.

The durability of this pattern raises important considerations. Sustained labor shortages could fuel wage pressures in hard-to-staff sectors, potentially complicating Federal Reserve monetary policy decisions. Meanwhile, workers trapped in unemployment may face prolonged career disruptions unless reskilling initiatives scale rapidly. While today's separation vigor signals worker confidence, its longevity will depend on whether employers and educational institutions can align productivity needs with workforce capabilities.

Labor Market Risks: Quit Rates and Hiring Dynamics

The rising quit rate, now at 3.3 million monthly levels, remains a key inflationary pressure point. Workers leaving jobs voluntarily often negotiate higher pay during transitions, pushing employers to raise wages even for remaining staff to retain talent. This dynamic risks fueling wage growth that outpaces productivity gains-a classic inflation trigger according to JOLTS data. While quits reflect labor market confidence, their sustainability is questionable if economic uncertainty rises or hiring slows further.

Hiring-to-separation ratios offer another stress test. With 5.3 million hires and separations monthly, the market maintains churn but shows diminishing capacity to create new jobs. Declining openings (7.7 million reported) suggest employers are less willing to expand, potentially cooling wage pressures but signaling weaker demand. If participation rates fall further, the pool of available workers shrinks, amplifying competition for talent and constraining hiring.

The BLS's labor force participation metric-tracking those employed or seeking work-adds nuance. A declining participation rate could mask underlying weakness, as discouraged workers exit the labor force, reducing unemployment artificially without addressing job quality or availability according to BLS definitions. This complicates policy responses, as traditional labor market indicators may mislead if participation continues falling.

Downside risks include a potential slowdown in quit rates if employer confidence erodes further. A sharp drop could indicate reduced worker bargaining power, cooling wage inflation but raising concerns about economic stagnation. Policymakers must monitor how these dynamics interact with broader economic conditions, particularly if productivity growth remains muted.