Is the U.S. Labor Market Getting Less Dynamic? – Real Time Economics

Declining churn in the labor market may be holding back people’s careers and the entire economy. One of the key questions about this phenomenon is whether it’s the temporary result of an especially severe recession, or if some sort of structural changes in the U.S. economy are making the labor market permanently less dynamic.

David Mericle, an economist at Goldman Sachs, shares the following chart that tracks the overall dynamism of the U.S. labor market, by combining into a single index a range of dynamism measures from several different economics reports: the Job Openings and Labor Turnover survey, known as JOLTS, the Business Employment Dynamics data, and data from the Labor Department’s Current Population Survey on job transitions.

The labor market clearly gets less dynamic during recessions. That’s no surprise. There’s less hiring and less voluntary quitting that go on when the economy is bad. But there’s another trend in this data over the last 15 years: Even when the economy is in recovery periods and adding jobs at a brisk clip, dynamism just hasn’t picked up very much.

(Remember, total job growth of 200,000 could result from 300,000 hires and 100,000 separations. Or it could result from 1.2 million hires and 1 million separations. Both have the same net job growth, but the latter example would obviously be a more dynamic economy.)

Mr. Mericle’s report highlighted research from the Census Bureau that concluded structural change in the economy accounts for “relatively little” of the decline. But most measures of dynamism are relatively new (the JOLTS report, for example, has been conducted for only a little more than a decade) and it’s an area of economics that researchers are still struggling to understand.

One thing that’s clear, the decline is very broad-based. At all education levels, workers are getting less likely to switch jobs.

The decline is occurring across all age levels, and it’s especially hitting the young.

The youngest workers still job-hop more often than older workers. But their rate of job turnover has declined the most sharply. (A similar trend can be seen in the data on job tenure, highlighted in our story on the decline of job quitters.)

A number of factors can explain parts of this trend. One is that despite record corporate profits, companies have been slow to add to their payrolls, and workers need someone to be willing to hire them in order to benefit from quitting. Workers may be nervous about switching jobs after seeing how weak the economy has been in recent years and they may still be frightened by the massive layoffs that rocked so many firms during the recession. This risk aversion may lead to reluctance to switch jobs, even when an offer is received.

Justin Hirsch, the president of the recruiting firm Jobplex, said he sees workers simply becoming more cautious about job transitions than in the past: “The younger population recognizes the grass isn’t always greener on the other side. When they make moves, they’re making more thoughtful moves.” The most promising  job candidates can be difficult to entice away to new jobs, he said, even with offers of a higher salary.

This generational increase in job anxiety, the rising reluctance of firms to hire, and the overall decline in dynamism could fade away as the economy continues to heal. But if dynamism remains depressed it could have lasting repercussions for the labor market. Mr. Mericle said in his research note that the change “risks locking out the unemployed and marginally attached, in some cases permanently. A labor market with little turnover is naturally more difficult to enter for those not currently employed.”



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