What is the Help-Wanted Index (HWI)?
The help-wanted index (HWI), originally developed by the Conference Board, tracks the number of help-wanted advertisements in major national newspapers monthly. The HWI is used as a leading indicator of economic conditions. Currently, the HWI is not a commonly used indicator due to the growing use of the internet to post job openings.
- Originally developed by the Conference Board, a help-wanted index tracks the number of help-wanted advertisements in major newspapers monthly.
- An increasing help-wanted index indicates a relatively greater number of jobs that need to be filled than in previous periods and vice versa.
- With the growing use of the internet to post job advertisements, the help-wanted index has faced irrelevancy.
Understanding the Help-Wanted Index
To understand a help-wanted index, it is important to have a high-level understanding of its construction.
Below is an example of how to construct a simplistic help-wanted index. An HWI can be made more complex by incorporating a population size, among other variables.
1. Select a base month and assign the average number of help-wanted advertisements in major newspapers in that month an index value of 100.
For example, assume the average number of help-wanted advertisements in January (our base month for this example) is 1,500. We would assign 1,500 help-wanted advertisements to an index value of 100.
2. In subsequent months, the average number of help-wanted advertisements is divided by the average number of help-wanted advertisements in the base month and multiplied by 100 to determine the index value change.
For example, assume the average number of help-wanted advertisements in February is 1,750. The HWI in February would be calculated as 1,750 / 1,500 x 100 = 117.
Interpreting the Help-Wanted Index
The following graphic, taken from Statistics Canada, outlines how the HWI performs over economic recessions. The HWI declines at the onset of each recession and continues dropping until an economic recovery:
The following graphic, taken from a paper titled “How Much of Canada’s Unemployment is Structural (1999)” by Lars Osberg and Zhengxi Lin, correlates the HWI and the unemployment rate. As the HWI decreases, unemployment increases, and vice versa.
Example of Interpreting the Help-Wanted Index
Background: Colin is an economic analyst at ABC Company. It is the year 1960, where the majority of job postings are through newspapers. He has noticed that corporate earnings have been declining, leading him to speculate that a recession is on the horizon.
To determine whether a recession may be imminent, Colin has created a simplistic help-wanted index by looking at the number of job advertisements on major newspapers over the last six months, as shown below:
Question: Does the HWI support Colin’s speculation of an incoming recession?
Answer: Yes, the HWI is used as a leading indicator of economic conditions. With the HWI deteriorating rapidly since March, it is a potential indication of an incoming recession.
The Key Limitation of the Help-Wanted Index
With the growing use of the internet to post job advertisements, the HWI has faced obsolescence. Canada’s development of the HWI was terminated in 2003, citing that the index’s performance was no longer reflective of unmet labor demand due to the internet. For example, consider the following hypothetical data on job advertisements:
If an individual were to do an HWI on the data above, the individual would find that unmet labor demand has been decreasing and might reach the conclusion of an incoming recession. However, it would not be true, as the total job advertisements have actually been increasing each month, attributed to the shift to posting online.
A modern alternative to the HWI is the Help-Wanted Online Index (HWOI), which looks at the number of online help-wanted advertisements.
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