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One of the great oddities of the current job market is that job openings (as reported by the BLS) and help-wanted online ads (as reported by the Conference Board) have both been on the rise over the past year. These are usually signs of good labor demand.

However, actual new hires and employment growth have only edged up mildly. In other words, good labor demand has not translated into actual hires.

We can see this most clearly in the business and professional services sector (advertising, law, computer programming, etc). The chart below plots the rate of new hires against the rate of job openings in this industry.

Job openings in business and professional services (the blue line) have soared in recent months. In fact, they are back to 2007 levels. But hiring (the red line) is flat or even trending down.

This is pretty much the pattern across the whole economy. What is going on here? There are three possibilities: Mismatch, offshoring, and lags. Mismatch says that companies would like to hire, but can’t find the right people. Offshoring says that companies have openings, but they are filling them overseas. Lag would say that companies have openings, but it’s taking them time to pull the trigger, given the overall uncertainty.

I’m going to vote for a combination of offshoring and lag. I’m sure that some job openings are going overseas. But the statistics also suggest that hiring pressure is building up in some sectors of the economy. If that’s so, 2011 may be a better year for the labor market than people expect.

Source: The Job Openings Paradox