Developed economy labor markets are returning to more normal patterns. The collective mid-life crisis, when everyone decided that happiness was best achieved by changing employer, has faded. With less job churn, the relationship of job vacancies to unemployment has normalized, UBS macro analyst Paul Donovan notes.

Flexible working may be improving labor market efficiency

“Fewer workers quitting has lessened the incentive for employers to hoard labor. This has not resulted in a surge in layoffs—demand in developed economies is not weak enough to justify that—but it may increase the sensitivity of labor markets to future consumer demand.”

“Labor markets today differ from pre-pandemic norms. There is evidence of more automation when labor is hard to find, boosting productivity. Flexible working may be improving labor market efficiency by reducing geographic constraints and allowing people to better match their skills to jobs. This trend also supports more women working for better pay.”

“Cyclically, what matters is whether fear of unemployment remains low. If unemployment rises because of more people entering the workforce, there is less need to worry about economic activity. Reduced hiring signals an economic slowdown, not a recession. However, if things change and more people who currently have jobs are fired, fear of unemployment would rise.”