7 Questions with NCCI Executive Director and Senior Economist Stephen Cooper

Boca Raton, FL (WorkersCompensation.com) -- If you're in the know in the world of workers' compensation, chances are you've encountered NCCI's Labor Market Insights report, a monthly dashboard that provides insights on what the latest jobs reports mean for the industry.

To get a better understanding of the report and what the latest numbers tell us, we caught up with one of the economists behind it.

Here's what Stephen Cooper, Executive Director and Senior Economist at NCCI to say.

Q. Tell us about the Labor Market Insights report and why NCCI created it?

A. The Labor Market Insights report is a direct result of stakeholder feedback – carriers are looking for a steady stream of timely and relevant insights on the labor market and what it means for workers comp. There is a lot of economic commentary out there, and none that ties directly to comp – that’s where we come in. We deliver economic insights through a workers compensation lens. The next Labor Market Insights report drops on Monday, February 5.

Q. The Labor Market Insights report mentions that for 2023, turnover metrics moderated back to near pre-pandemic averages. What does that tell us about where we are in the life cycle of the "Great Resignation"?

A. We’ve talked for a while about the labor market dynamics in the wake of the pandemic as a “Great Reshuffle,” with more job turnover and a smaller labor force due to reduced participation and immigration. This period has mostly come to an end.  The quits rate returned to its 2019 level in July of 2023 and has trended near that level since. Despite frequent media headlines, the layoffs and discharges rate has trended near historical lows in 2023 as well. While hiring has slowed this year, workers leaving jobs both voluntarily and not have also dropped. We’ve also seen a recovery in the labor force participation rate, especially for mid-career workers. Increased turnover typically correlates to higher wage growth as workers leave jobs for pay raises and companies must compete to retain talent. Normalization of turnover and higher labor supply will likely put some downward pressure on wage growth in 2024.

Q. Many forecasters expected much cooler December hiring numbers. What accounts for such a gap between predictions and reality?

A. Monthly employment reports are typically quite volatile, and it is better to look at a longer-term trend to assess the direction of employment gains. The general trend for 2023 has been solid but slowing job growth, and the December report doesn’t really change this pattern. Monthly volatility is especially acute around the end of the year holiday period. Employment statistics are seasonally adjusted, taking into account the normal surge in employment from temporary seasonal workers in sectors such as retail trade and transportation services (delivery drivers). When seasonal hiring patterns deviate from longer-term averages, it injects increased volatility into the monthly prints, making them difficult for forecasters to predict.

Q. The numbers over the past 6 months show some teeter-tottering. For example, June was lower than July, which was stronger than August, and a strong September was followed by a weaker October. With December numbers being higher than expected, why would or wouldn't it be reasonable to assume there might be a lower mark in January?

A. Monthly volatility in the employment report is to be expected and 2023’s numbers highlight the importance of looking at a longer-term trend to assess the overall strength of employment gains. Average monthly employment gains in 2023 were +225K, much lower than 2021 and 2022 but above the average of +190k for the 2015-2019 pre-pandemic period. The last 6 months of 2023 averaged +193K, slower than the first half of the year but about on par with the pre-pandemic average.

The headline employment gain from previous months usually tells us little about what might be ahead in the next month. The details of the report, however, can give us clues as to what might be in store. Specifically, the November and December reports showed that there were fewer hires in retail trade and transportation services than normal during the run up to the holidays. Fewer seasonal hires typically lead to fewer layoffs at the end of the season when companies right size their workforces to handle normal demand. In January of 2023, fewer seasonal layoffs led to a blockbuster +517k seasonally adjusted gain after an increase of +223k reported for December of 2022. While there is no certainty that this phenomenon will happen again in 2024, the details of the November and December 2023 reports suggest we might see an upside surprise in January.

Q. The report refers to a labor market that's reaching a "more balanced state." Given the anomalies the labor market has faced since 2020, what does an optimally balanced market look like, and how likely is it that the 2024 labor market will look the closet to the 2019 labor market of any year since the beginning of the pandemic?

A. An optimally balanced labor market is one in which labor supply and labor demand are more closely aligned, compared to the extreme dislocation the pandemic caused. A popular metric cited by the Federal Reserve is the ratio of job openings (labor demand) to unemployed workers (labor supply). In 2019, there were roughly 1.2 job openings per unemployment worker. This number skyrocketed to over 2.0 job openings per unemployed worker in early 2022 but has now slowed to around 1.4 through a combination of falling job openings and rising unemployment.

Many people may think that a rising unemployment rate is bad news for the economy but that is not always the case. We don’t want workers to lose their jobs, but the unemployment rate can also rise if people who had officially been out of the labor force start looking for a job again. Rising labor force participation was a key theme of 2023, particularly for prime age (25- to 54-year-old) workers. This is why we saw a slight increase in the unemployment rate even as employment steadily increased.

As discussed above, employment and wage growth moderated in 2023 and job turnover fell close to 2019 rates. If these trends continue, then labor market indicators for 2024 will look more similar to pre-pandemic averages than to the recession and recovery period starting in 2020.

Q. What's the most important thing the workers' compensation industry can take from the current state of the labor market?

A. The current labor market has several dynamics that the workers' compensation industry can consider positive. While employment growth has slowed, wage growth has remained elevated, boosting payroll growth and premiums for most industries. Additionally, rising participation has increased labor supply, reducing the struggle for companies to find workers that fit their needs. High turnover and fast hiring leads to a greater share of low tenured workers, who tend to have higher injury frequency than longer-tenured workers. Slower turnover and a lower rate of hiring are reducing low tenured workers as a percentage of the labor force over time, while an increased pool of available workers to hire from can increase the quality of hires, both of which can reduce frequency.

Q. What’s next for NCCI’s economics team?  

A. We have a great team that includes NCCI Economists Patrick Coate and Yariv Fadlon and Economic Analyst, Shawn Adcock. Together, we recently published our Quarterly Economics Briefing Q4 2023 (QEB). While the LMI gives the monthly headlines, the QEB enables us to go deeper into specific economic topics of interest. Highlights include that payroll growth in workers compensation is still above pre-pandemic levels, and wage growth will likely continue to drive WC payroll growth throughout 2024.

Also coming up is NCCI’s Annual Insights Symposium (AIS) in May, and I’ll be delivering this year’s State of the Economy and Impact on Workers Compensation. We know the economy is a top concern for our industry, and we have a lot to talk about. We’ll also be unveiling Medical Inflation Insights for a quarterly view into medical inflation trends – you won’t want to miss it.    

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