The bank’s economists argue that what looks like a fragile jobs market is actually a sign that workers and employers have gotten much better at finding each other
Central bankers have been nervous about the jobs market for the wrong reasons, according to a new note from Goldman Sachs economists Megan Peters and Joseph Briggs.
The low-hiring, low-firing pattern that has characterised labour markets across the developed world since the pandemic is not a warning sign of impending weakness, they argue. It is, in large part, the product of a structural improvement in how jobs get filled.
Labour market turnover has fallen to historically low levels across developed economies. Job-to-job switching rates in the US and UK have pulled back particularly sharply. Federal Reserve officials have described this as a fragile equilibrium, on the grounds that any softening in demand could translate quickly into rising unemployment. The Goldman economists take a more sanguine view.
The real story is fewer bad hires
Their central finding is that the decline in overall labour market churn is driven overwhelmingly by a fall in short-tenure separations: jobs that end within the first one or two quarters after hiring. In the US, declining short-term separations account for 84% of the drop in overall job separations since 2019. In Canada, they explain the entire decline.
This pattern holds across industries and cannot be explained by shifts in workforce composition.
The Goldman economists conclude that firms and workers have simply become better at identifying good matches before committing to them.
On the worker side, platforms such as Glassdoor, LinkedIn and Indeed have made it easier to assess an employer before accepting a role. On the employer side, improved screening tools and the growing online presence of candidates have helped reduce costly hiring mistakes.
A recent LinkedIn survey found 59% of recruiters are already seeing benefits from artificial intelligence screening tools, with 93% planning to increase their use over the coming year.
So, why does this matter?
The implications run deeper than the headline hiring figures suggest. Fewer bad matches mean less replacement hiring, which mechanically reduces the overall hiring rate.
Goldman’s modelling suggests this channel can explain most of the decline in US hiring rates since 2019. Crucially, less churn also means less frictional unemployment, the kind generated by workers moving between jobs rather than by a lack of work.
The bank’s model suggests that underlying slack in the US labour market has actually increased by more than the rise in the unemployment rate implies, because the unemployment rate itself has been held down by reduced churn rather than robust demand.
The practical conclusion is cautiously reassuring: a labour market that hires less but also fires less, because matches are better from the start, is not inherently unstable. It may simply be more efficient.
