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How to measure balance of power between employers and workers


It's one thing to quit your job and a completely different thing to get laid off or fired. Wailin Wong and Darian Woods from our daily economics podcast, The Indicator from Planet Money, compare firings and layoffs with people who quit to see who has more power in today's labor market, workers or employees.

WAILIN WONG, BYLINE: Aaron Sojourner is a labor economist at the W.E. Upjohn Institute for Employment Research. And through all his years of studying the job market, there's something that has nagged at him.

AARON SOJOURNER: You don't spend a lot of time focused on the distinction between workers who are fired and workers who quit.

DARIAN WOODS, BYLINE: The situations that lead to either a worker quitting or getting laid off can be really different, especially when it comes to who has better options.

SOJOURNER: Workers quitting their jobs is a signal that they feel like they have a lot of options, maybe getting good competing offers from other employers. So that's a measure of, like, workers feel strong.

WONG: Then there are the employers. They lay off or fire workers when they feel like there are better candidates out there. Or maybe they'd rather not have anyone in that position.

SOJOURNER: When employers start feeling like, oh, I have a better option than the people I have employed right now, that's a sign that employers are feeling strong.

WOODS: So picture two groups of workers. On one side, you've got all the workers in the labor market who voluntarily left their jobs in the last month. On the other side, you've got all the workers who were laid off or fired.

WONG: These groups are the two parts of what Aaron has dubbed the labor leverage ratio. It is a ratio of quits to layoffs and firings.

WOODS: When there are more workers quitting than being let go, that signals that workers have the upper hand. They can push for higher wages or better conditions at their jobs.

WONG: But when there's more layoffs and firings than quitting, that means employers have more power. They can keep wages the same or be stricter with their workers.

SOJOURNER: The labor leverage ratio, it's meant to capture who's got the power in the relationship, who's more in the driver's seat.

WOODS: And when we talked to Aaron, he was able to calculate the most up-to-date labor leverage ratio.

SOJOURNER: It's 2.1 in March, so that means 2.1 workers quit their job for every worker that was fired.

WONG: Aaron says that 2.1 number for March is pretty close to what it was pre-pandemic, and it's come down from the all-time high of 3.3 that it reached in April of 2022.

WOODS: Aaron does acknowledge that these broad measures of quits and firings miss some subtleties. There isn't a way to see how the labor leverage ratio compares by race or age or education or geography.

WONG: Aaron also points out that ultimately, this balance of power between workers and employers is tightly linked with economic policy. For example, as the Federal Reserve has been raising interest rates, businesses are belt tightening. That means less wage growth and more layoffs.

WOODS: On the other hand, Aaron says that major legislation like the Infrastructure Bill, the Inflation Reduction Act and the CHIPS Act could boost demand for workers, and especially ones without four-year college degrees.

SOJOURNER: So I think a lot of these new investments that the federal government's making have built some power for workers in a place that they haven't had it in a long time.

WOODS: Aaron says that this could be an important break for those workers, whose participation in the labor market has declined for decades. Darian Woods.

WONG: Wailin Wong, NPR News. Transcript provided by NPR, Copyright NPR.

Darian Woods is a reporter and producer for The Indicator from Planet Money. He blends economics, journalism, and an ear for audio to tell stories that explain the global economy. He's reported on the time the world got together and solved a climate crisis, vaccine intellectual property explained through cake baking, and how Kit Kat bars reveal hidden economic forces.
Wailin Wong
Wailin Wong is a long-time business and economics journalist who's reported from a Chilean mountaintop, an embalming fluid factory and lots of places in between. She is a host of The Indicator from Planet Money. Previously, she launched and co-hosted two branded podcasts for a software company and covered tech and startups for the Chicago Tribune. Wailin started her career as a correspondent for Dow Jones Newswires in Buenos Aires. In her spare time, she plays violin in one of the oldest community orchestras in the U.S.