Labor Market: What It Means for Employers

What it means in practice

What the labor market is. Every job sits in a labor market defined by an occupation and a place: bookkeepers in one metro area, nurses in a state, software developers nationally. The demand side is employers who want to fill positions. The supply side is people who are working or looking for work and could take those positions. Pay is the price. When openings outnumber available candidates, employers tend to raise pay, widen recruiting or accept longer vacancies; when candidates outnumber openings, the reverse. The Bureau of Labor Statistics (BLS) measures both sides. A 2016 Monthly Labor Review article calls job openings "a procyclical measure of labor demand," and the unemployment rate from the household survey measures people who want work but do not have it.

Labor market vs. labor force. The two terms are easy to mix up. The labor force is a count of people: the BLS glossary defines it as people ages 16 and older classified as employed or unemployed, and the labor force participation rate as the proportion of the age-eligible population that is in the labor force (61.8 percent in September 2026). The labor force is the supply side. The labor market is the whole interaction, including employer demand, hiring and quitting flows, and the wages that result.

JOLTS: the demand and turnover survey. The Job Openings and Labor Turnover Survey (JOLTS) samples about 21,000 nonfarm business and government establishments each month. Its definitions matter if you want to compare your own numbers with it:

Job openings. Positions open on the last business day of the month. A job counts only if a specific position exists and there is work available, the job could start within 30 days whether or not a suitable candidate is found, and the employer is actively recruiting from outside the establishment. Positions open only to internal transfers, promotions, demotions or recall from layoff are excluded, as are positions to be filled by temporary help agencies, contractors or consultants.

Hires and separations. Hires are all additions to the payroll during the month, including rehires. Separations are all removals from the payroll, split into three groups. Quits are employees who left voluntarily, excluding retirements and transfers to other locations. Layoffs and discharges are involuntary separations initiated by the employer, including layoffs lasting more than 7 days, firings and terminations. Other separations are retirements, transfers to other locations, separations due to employee disability, and deaths.

How JOLTS rates are calculated. According to the JOLTS technical note, the job openings rate is job openings divided by the sum of employment and job openings, times 100. The hires rate and each separations rate are the count divided by employment, times 100. Employment here is the Current Employment Statistics (CES) payroll figure, which counts people on the payroll who received pay for any part of the pay period that includes the 12th of the month. Annual rates use the sum of the 12 monthly employment levels as the denominator.

Example 1: computing your own quits rate. A company has 60 employees on the payroll for the pay period that includes September 12. During September, 2 employees resign, 1 retires and 1 is let go. Following the JOLTS definitions, the retirement goes in other separations and the dismissal in layoffs and discharges, so only 2 count as quits. The quits rate is 2 / 60 x 100 = 3.3 percent, compared with the national rate of 1.9 percent for August 2026. If the company also has 5 positions open on September 30 that meet all three conditions, its job openings rate is 5 / (60 + 5) x 100 = 7.7 percent, against 4.3 percent nationally. A single month at a small employer is noisy, so compare a 12-month figure built the same way: total quits for the year divided by the sum of the 12 monthly employment counts.

The Beveridge curve. BLS publishes a JOLTS chart of the Beveridge curve, the job openings rate plotted against the unemployment rate, monthly since December 2000. The 2016 Monthly Labor Review article explains that during an expansion the unemployment rate is low and the openings rate high, so the monthly point sits up and to the left; during a contraction it moves down and to the right. A 2012 Monthly Labor Review article attributed the post-2009 rightward shift of the curve to a shortfall in hires per vacancy, meaning employers were filling fewer jobs per opening than past patterns predicted. The latest point on the BLS chart is August 2026, with a 4.3 percent openings rate and a 4.1 percent unemployment rate. The chart has no unemployment value for October 2025; Washington's Employment Security Department notes that BLS canceled that month's unemployment publications because of the government shutdown.

Payroll survey vs. household survey. The monthly Employment Situation report combines two surveys that answer different questions. The CES establishment (payroll) survey covers about 119,000 businesses and government agencies representing about 622,000 worksites, and measures nonfarm jobs, hours and earnings by industry. The Current Population Survey (CPS) household survey covers about 60,000 eligible households and measures labor force status, including unemployment, by demographic characteristics. They differ in scope. The household survey includes agricultural workers, the unincorporated self-employed, unpaid family workers, private household workers and people on unpaid leave; the payroll survey excludes them. The household survey covers people 16 and older and counts each person once, while the payroll survey has no age limit and counts a person once for each payroll job. Payroll estimates are benchmarked once a year to unemployment insurance records; BLS reports an average absolute benchmark revision of 0.2 percent over the prior 10 years. Monthly revisions can be large relative to a single month: in the September 2026 release, July's change was revised from +21,000 to -10,000.

Average hourly earnings vs. the Employment Cost Index. Average hourly earnings (AHE) come from the payroll survey and equal aggregate weekly payroll divided by aggregate weekly hours. The BLS Handbook of Methods says payroll includes overtime pay, holiday and vacation pay, sick leave paid directly by the employer, and commissions paid at least monthly. It excludes irregular bonuses, retroactive pay, payments in kind and employer-paid benefits such as insurance and retirement contributions. Because AHE is an average, it rises when lower-paid jobs disappear even if no one gets a raise. The Employment Cost Index (ECI) is built to avoid that: BLS says it uses a fixed basket of labor to measure a pure cost change, free from the effects of workers moving between occupations and industries, and it includes both wages and salaries and benefits. The ECI is published for each three-month period. BLS has announced that, starting with December 2026 data, the ECI will use updated employment weights and remove workers' compensation costs.

Example 2: reading the ECI for a pay budget. An employer with $1,500,000 in annual wages and salaries wants to know what keeping pace with the market would have cost over the most recent year. Civilian wages and salaries rose 3.2 percent in the 12 months ending June 2026, so $1,500,000 x 0.032 = $48,000. Private industry wages and salaries rose 3.1 percent, or $46,500 on the same base. This is a market reading, not a required raise.

OEWS: wage data by occupation and area. The Occupational Employment and Wage Statistics (OEWS) program produces employment and wage estimates for about 830 occupations, for the nation, states and about 530 metropolitan and nonmetropolitan areas. The sample covers 1.1 million establishments, combining six semiannual panels collected over three years, with wages adjusted to a May reference period. OEWS wages are straight-time gross pay: they include base rates, commissions, cost-of-living allowances, incentive pay, production bonuses and tips, and exclude overtime, non-production bonuses, shift differentials and year-end bonuses. A percentile wage is a boundary: the 25th percentile is the wage below which a quarter of workers in that occupation and area earn. BLS does not encourage using OEWS for time-series analysis, so treat each year's release as a snapshot. The May 2025 estimates were released May 15, 2026; nationally, human resources specialists had a median annual wage of $75,940, with the lowest 10 percent below $47,180 and the highest 10 percent above $128,720.

Example 3: setting a pay range with OEWS percentiles. Washington's 2026 OEWS workbook (wages updated to the second quarter of 2026 using ECI changes; the state notes the updated figures have not been validated by BLS) shows these hourly wages for customer service representatives. In the Spokane-Spokane Valley metro area, the 25th percentile is $19.69, the median $23.02 and the 75th percentile $25.50. In the Seattle-Tacoma-Bellevue division, they are $22.66, $26.36 and $30.19. A Spokane employer that sets its range at the 25th to 75th percentile would pay $19.69 to $25.50 an hour, with the median as the midpoint reference; the top of that range is 29.5 percent above the bottom ($25.50 / $19.69). Annualized at the 2,080 hours OEWS uses for annual figures, the Spokane median is $23.02 x 2,080 = $47,881.60. The same range in Seattle would start $2.97 an hour higher. Because OEWS excludes overtime and shift differentials, compare these figures with base pay, not total earnings. Finally, check the legal floor: Washington's 2026 minimum wage is $17.13 an hour, below the Spokane 25th percentile, and some Washington cities set higher local minimums.

Local data: LAUS and state LMI offices. The Local Area Unemployment Statistics (LAUS) program produces monthly and annual employment, unemployment and labor force data for Census regions and divisions, states, counties, metropolitan areas and many cities, by place of residence. In the State Employment and Unemployment release of October 20, 2026, September 2026 state rates ranged from 2.0 percent in South Dakota to 5.1 percent in California. Every state has a labor market information office, listed on the BLS State Labor Market Information Contact List. As an example, the Washington Employment Security Department's labor market information pages publish county LAUS estimates and an annual OEWS workbook for the state, its metro areas and two nonmetropolitan areas. The department describes OEWS as a federal-state cooperative program and says its report can be used to set wages and compare wages by region and occupation.

Market conditions do not change legal minimums. A loose labor market with many applicants does not permit pay below the legal floor, and a tight one does not change overtime rules. The federal minimum wage is $7.25 an hour, effective July 24, 2009, and the Department of Labor notes that some state laws provide greater protections and employers must comply with both. The Fair Labor Standards Act says nothing in it excuses noncompliance with a federal or state law or municipal ordinance setting a higher minimum wage (29 U.S.C. 218(a)). Overtime for covered non-exempt employees is still owed for hours over 40 in a workweek, however hard a role is to fill. Minimums also move on their own schedule: Washington's Department of Labor and Industries adjusts the state rate each year using the CPI-W, and has announced $17.73 an hour for January 1, 2027. See our minimum wage entry.

Putting it together. Industry JOLTS openings and quits show how hard hiring and retention are likely to be; ECI shows cost growth; OEWS percentiles for your occupation and area, often easiest to reach through your state LMI office, benchmark wages. Related entries cover talent acquisition, compensation and the Great Resignation.

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