The Fruits of Civilization (59) Labor Market Fluidity

Labor Market Fluidity

US labor markets became much less fluid in recent decades. A shift to older businesses, an aging workforce, and policy developments that suppress reallocation all contributed to fluidity declines. Reduced fluidity has harmful consequences for productivity, real wages, and employment. ~ American economists Steven Davis & John Haltiwanger

In the United States, much of Europe, and Japan, labor is bifurcated into secure, predominantly skilled jobs and precarious, mostly unskilled work. The split owes to inflexible labor markets that make it harder for workers to climb the job ladder.

Labor market solidification partly owes to structural changes in the economy. New businesses create jobs; old ones, not so much. Occupational licensing raises barriers to entry for occupations that once were open to those with pluck and skill. American employers used to be free to sack workers more or less as they pleased, but “employment at will” has been eroded by court decisions which create an implicit contract between employee and employer. The flood of online information now available allows employers to better discretely screen applicants, leading to less use of trial employment, where workers may prove themselves beyond their past.

A significant labor solidification force is oligopolization. Because the American economy is dominated by so few large employers, US employment is roughly 12% lower, and wages depressed at least 22%.

The US labor market is highly concentrated. ~ Spanish economist José Azar et al

Fluidity has fallen most for the young and least educated: those who especially need a break. For youth on the make, loss of fluidity makes it harder to move to better jobs, change careers, or win pay raises. For the unemployed, work opportunities come along less often: jobless spells lengthen, thereby morphing someone unemployed into unemployable via the perceived sin of idleness.

The U.S. economy faced serious impediments to high employment rates well before the Great Recession, and sustained high employment is unlikely to return without restoring labor market fluidity. ~ Steven Davis & John Haltiwanger

The decade-long recovery from the 2008 recession illustrated the volatility of the marginal labor pool. The disadvantaged were the last to be hired and will be the first to let go when the inevitable downturn arrives. The benefit of a heated economy to underclass employment pales to the penalty when the economy cools.