HPW Index

HPW (Heise-Pearce-Weber Labor Market Tightness) Index

The HPW Index is a tool that helps measure how “tight” the labor market is. In simple terms, it looks at how hard it is for employers to find workers. A higher HPW Index means businesses are having more trouble hiring because there are fewer job seekers available relative to job openings.

Unlike the traditional unemployment rate, which only measures the share of people without jobs, the HPW Index combines multiple labor-market signals. These include job vacancies, worker mobility, and the intensity of job search. As a result, it provides a more realistic view of labor market conditions and underlying wage pressure.

When the HPW Index rises, it often signals that employers are struggling to fill roles. This can lead to faster wage growth as firms compete for talent and may influence the Federal Reserve’s interest-rate decisions. A persistently tight labor market can contribute to inflation through higher labor costs.

Importantly, a “tight” labor market is not inherently negative. It usually reflects a healthy economy with abundant job opportunities. However, if demand for workers significantly outpaces supply, it can pose challenges for businesses and policymakers.

Overall, the HPW Index is a valuable tool for economists, businesses, and investors seeking early signals of shifts in labor market conditions and wage dynamics.

What Makes the HPW Index Unique?

Unlike traditional labor metrics such as the unemployment rate, the HPW Index is designed to capture wage pressure. It is built on the idea that the best predictor of wage growth is not simply how many people are unemployed, but how actively workers are moving between jobs.

1. The Two Core Inputs

The index is calculated as a weighted average of two key variables:

• The quits rate: When more workers voluntarily leave their jobs, it signals confidence in finding better-paying roles. This “job-hopping” behavior is a primary driver of wage growth.
• Vacancies per “effective searcher”: Rather than counting only the unemployed, the HPW Index also includes employed workers who are actively searching for new jobs.

2. Why “Effective Searchers” Matter

Most new hires come from other jobs, not from unemployment. By including on-the-job searchers and weighting them by their likelihood of actually landing a new position, the HPW Index provides a far more accurate measure of labor-market competition and wage pressure than traditional unemployment-based metrics.

Why the Index Focuses on “Effective Searchers”

The “secret sauce” of the HPW Index is how it defines a job seeker. Instead of treating all job seekers equally, it calculates a weighted measure of “effective searchers” based on job-finding probability.

Searcher Type	Weight / Intensity	Rationale
Employed	High	Most likely to move and have leverage to demand higher pay from a new employer.
Short-term Unemployed	Moderate	Actively searching with relatively fresh skills.
Long-term Unemployed	Lower	Face higher friction and “search fatigue” when re-entering employment.

By incorporating the quits rate and vacancies per effective searcher, the index captures the “job ladder” effect, where workers moving between jobs create cascading wage pressure across the economy.

Current Status: Reaching “Balance” (-0.07)

As of December 2025, the HPW Index reading of -0.07 marks an important milestone for policymakers.

• The zero line: A value of 0.0 represents a labor market in historical balance, benchmarked to 1994–2024 averages.
• What -0.07 means: The overheated labor market of the early 2020s has cooled, with both vacancies and quits declining.
• Policy implication: Reduced wage pressure suggests labor costs are less likely to drive inflation, potentially giving the Federal Reserve greater flexibility as the economy moves into 2026.