The dominant narrative about the labor market is that it is stuck in a “low hire, low fire stasis.“ Relatively few workers are being put on payrolls, and few are being knocked off.
The low hire portion of the analysis is typically interpreted as demonstrating a hesitancy on the part of employers, perhaps due to uncertainty about economic policy, interest rates, and geopolitics. It is often read as a sign that demand for labor has plateaued.
That’s an illusion. Demand for labor is rising across the American economy, with an especially sharp increase in manufacturing. To see this, however, it helps to look beyond figures like monthly payroll numbers or even job openings and include the number of hours worked.
A factory that adds half an hour to its average workweek has increased its demand for labor even if its head count hasn’t budged. Multiply that across millions of workers and you have a substantial increase in the amount of labor businesses are purchasing. Employers can also seek additional workers without having hired them yet. An unfilled position represents demand for labor.
Combining all three of these—employment levels, vacancies, and the average workweek—produces what we call the Labor Demand Proxy.
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