10 March 2013

Phantom Jobs

The number of job openings has increased to levels not seen since the height of the financial crisis, but vacancies are staying unfilled much longer than they used to — an average of 23 business days today compared to a low of 15 in mid-2009, according to a new measure of Labor Department data by the economists Steven J. Davis, Jason Faberman and John Haltiwanger.
Some have attributed the more extended process to a mismatch between the requirements of the four million jobs available and the skills held by many of the 12 million unemployed. That’s probably true in a few high-skilled fields, like nursing or biotech, but for a large majority of positions where candidates are plentiful, the bigger problem seems to be a sort of hiring paralysis.
There’s a fear that the economy is going to go down again, so the message you get from C.F.O.’s is to be careful about hiring someone,” said John Sullivan, a management professor at San Francisco State University who runs a human resources consulting business. “There’s this great fear of making a mistake, of wasting money in a tight economy.”

Now, a lot of economists would take the current hiring freeze to be indicative of economic uncertainty (and there is certainly some validity to this view), but it seems more reasonable to assert that the real issue is that these jobs are really predicated on macroeconomic growth since a lot of CFOs—indeed, any number of professional economists—tend to make policy recommendations on macro trends, or certain micro trends. Of course, these macro and micro policy instruments are manipulated by government policy.  In particular, The Fed is supposed to enact monetary policy that helps keep CPI in check, or helps boost other economic indicators, while the federal government is supposed to enact fiscal policies that work towards similar ends.  Thus, a lot of corporate policies and analysis are generally contingent on macroeconomic data and the trends found therein.

As a result, the jobs being advertised by major firms are more appropriately thought of as phantom jobs since filling the positions are generally viewed as risky.  Employers want to find the absolutely best candidate, so as to ensure that no money is wasted by hiring someone new.  What this means is that employers are interested in minimizing hiring and training costs (HR is basically a fixed cost, so having HR people jerk applicants around doesn’t really affect the bottom line while the extra costs of actually bringing a new employee aboard aren’t realized until the actual hire) and thus take their time hiring.  They make rescind the position if the macroeconomic data trends suggest that potential economic growth is diminished or negative.

These jobs are phantom jobs because their existence is contingent on improvements in macroeconomic trends and conditions.  If the economy doesn’t get better, employers will continue to delay hiring people.  If the economy gets worse, they may forego hiring altogether.  Thus, these jobs are mostly contingent on macroeconomic trends, which are themselves subject to government manipulation.  Therefore, the hiring freeze could be nothing more than unrealized government stimulus, which makes these jobs essentially fake, since economic stimulus is nothing more than a false signal of demand.

Thus, it is easy to see why government statisticians are so eager to put a positive spin on every new release of macroeconomic data, like CPI, employment numbers, GDP, etc.  As long as the government continues to push the message that the economy is recovering, the government can basically convince businesses to hire people in the vain attempt to prop up the economy.  Unfortunately, if the economy starts to drag again, or drag even more than it is already dragging, these new jobs will disappear as quickly as they appeared, which is what makes them phantom jobs.