Steven Merrell, Financial Planning: Preparing for the job hunt

The strength of the labor market is truly remarkable. The last time the jobless rate was this low for this long, Richard Nixon was settling into his first term in the White House, Neil Armstrong was walking on the moon, and a gallon of gasoline cost 35 cents.

Perhaps the most remarkable aspect of the current labor market story is that it has remained this strong even after the Federal Reserve’s 2-year battle against inflation. Since the Fed started its campaign against inflation in early 2022, the Fed Funds Rate has jumped from almost 0% to over 5.25% — the most aggressive series of rate hikes since the early 1980s.

With that kind of interest rate move, you would expect unemployment to increase. But the unemployment rate has actually dropped slightly since early 2022, from 4% to 3.8%. A new labor market report will be released on Friday. It will be interesting to see if last week’s slower-than-expected GDP growth reading will translate into higher unemployment. Even if it does, the fact remains that jobs are plentiful and workers are relatively scarce.

With the unemployment rate so low, you might think changing jobs would be simple — but that isn’t necessarily the case. Last month’s jobs report also showed that there are 1.2 million unemployed people who have been looking for work for more than 27 weeks. As a percentage of the U.S. labor force that may not be a big number, but it is still a lot of people.

If you are thinking about making a job change, there are certain things you do can to help your odds of success. Job changes can have a huge impact on your financial future, both good and bad. It pays to plan carefully.

According to job search experts at Job-Hunt.org, the old adage holds true: it is easier to find a job when you have a job. Employed workers generally have bigger networks for finding their next opportunity. Also, potential employers are risk-averse, and hiring an employed candidate assures that they aren’t making a “bad hire.” Finally, employed candidates appear less stressed about the hiring process, helping them come across better in interviews.

But the adage is true in another way: finding a job can be time consuming and expensive, especially if you are living on savings. If you are tempted to leave a job before securing a new one, think carefully about how much that transition will cost, and make sure you have the financial reserves to carry you through.

Job search consulting firm TealHQ.com estimates that job searches tend to take 44 days, from first application to first offer. The overall process takes even longer, including identifying new opportunities, submitting your resume, waiting to hear back, getting interviews, getting an offer, negotiating terms, and closing the deal. If your industry has been hit with a lot of layoffs, or you’re pivoting into a new industry, searches can take longer still.

Let’s suppose your current job pays you $52,000 a year, or $1,000 per week. If you quit your job, and it takes you 6 weeks to find a new one, that job search has cost you $6,000 in missed income. Additionally, you keep all the same living expenses (rent, food, transportation, healthcare, etc.), plus costs associated with your search (travel, hotels, meals, etc.). When you add it all up, a well-orchestrated job search could easily cost you $10,000. If you leave a highly paid job, the opportunity cost alone will make the shift that much more expensive.

If you want a higher-level job, like a vice-president or director role, the time to find such jobs usually takes longer (76 days or more), so the cost to change will likewise be higher. If it’s a career change and not just a new job, the process becomes longer still, as well as more complex and expensive. Such a move may make sense, but you need to be prepared for it.

As with all major financial decisions, a little financial planning goes a long way. Discuss your career goals with your financial planner. While nothing in life is certain, your financial planner can help you prepare for the realities of your job hunt. Your preparation will help ensure your success.

Steven C. Merrell is an investment adviser and partner at Monterey Private Wealth, Inc., in Monterey. Send questions concerning investing, taxes, retirement or estate planning to Steve Merrell, 2340 Garden Road Suite 202, Monterey 93940 or steve@montereypw.com.