As a starting point, considers some evidence on job flows. As Davis and Haltiwanger explain: "Job creation is the sum of employment gains at new and expanding establishments, and job destruction is the sum of employment losses at exiting and shrinking establishments." Here's the quarterly pattern of job creation and hires since 1990. Hires is greater than job creation (notice that the right-hand and left-hand axis are measured differently), because when (for example) workers at two different companies switch jobs, both companies have hired someone, but there is no overall job creation at either firm. Notice that the rate of job creation has been sagging since the 1990s, well before the Great Recession.
What to make of this decrease in the fluidity of the U.S. labor market in the last several decades? Here are some thoughts from Davis and Haltiwanger:
- "Long-term declines in job and worker reallocation rates hold across states, industries, and demographic groups defined by gender, education and age. Fluidity declines are large for most groups, and they are enormous for younger and less educated workers."
- Many factors contributed to reduced fluidity: a shift to older firms and establishments, an aging workforce, the transformation of business models and supply chains (as in the retail sector), the impact of the information revolution on hiring practices, and several policy-related developments. Occupational labor supply restrictions, exceptions to the employment-at-will doctrine, the establishment of protected worker classes, and “job lock” associated with employer-provided health insurance are among the policy factors that suppress labor market fluidity. As yet, however, we know little about how much these policy factors contributed to secular declines in fluidity."
- "The loss of labor market fluidity suggests the U.S. economy became less dynamic and responsive in recent decades. Direct evidence confirms that U.S. employers became less responsive to shocks in recent decades, not that employer-level shocks became less variable. ... Since 2000, job reallocation and the employment share of young firms have declined sharply in high-tech industries. These developments raise concerns about productivity growth, which has close links to creative destruction and factor reallocation in prominent theories of innovation and growth and in many empirical studies."
- "If our assessment of how labor market fluidity affects employment is approximately correct, then the U.S. economy faced serious impediments to high employment rates well before the Great Recession. Moreover, if our assessment is correct, the United States is unlikely to return to sustained high employment rates without restoring labor market fluidity."
I'll only add that the decline in labor market fluidity isn't a result of any one factor, and some of the economic and demographic forces behind the decline may be unavoidable or desireable. But the decline is also worrisome for the long-term health of the U.S. labor market and economy. When discussing policies that affect labor markets, whether they contribute to the ongong decline in fluidity should be part of the conversation.