While the business press points to May’s slowdown in the pace of layoffs as an early sign of recovery, Harvard economist Jeffrey Frankel says not so fast. Frankel, who’s also a member of the Business Cycle Dating Committee of the National Bureau of Economic Research, prefers an alternative indicator of employment – total hours worked – which he says provides a better gauge of economic cycles (pointer from Economix).
Speaking entirely for myself, I like to look at the rate of change of total hours worked in the economy. Total hours worked is equal to the total number of workers employed multiplied by the average length of the workweek for the average worker. The length of the workweek tends to respond at turning points faster than does the number of jobs.
Frankel provides the graph below which tracks the trend in hours worked over the past decade.
June 15th, 2009 at 10:38 am
When economic historians look back at this recession, one intriguing feature they’ll likely see is “talent hoarding” or employers finding ways to hang on to their staff — and even poach talent from elsewhere — while also reducing HR costs. Part time work, partially-paid leaves of absense and signing bonus but delayed start dates all seem to be features this time in many industries that face labour shortages.
So, tracking actual hours worked, rather than layoffs or the number of people collecting benefits, will likely prove the better indicator of broader economic improvement as this metric applies more broadly across industries.
Too bad there isn’t a readily available monthly stat like this for Canada (to the best of my knowledge — please tell me if you know of one!)