The changing calculus of labor market churn

The Wall Street Journal’s Josh Zumbrun today highlights the decline in labor market churn, or the amount of movement in the labor market as workers quit jobs, get laid off and are hired for new jobs in the United States. Zumbrun points out that the decline in churn can be particularly damaging for young workers. Moving from job to job is a large driver of wage growth for young workers. But given the long-term trends in labor market churn, perhaps this new level of churn is the new normal.

With the onset of the Great Recession, labor market churn declined quite a bit. According to data from Bureau of Labor Statistics’s Job Openings and Labor Turnover Survey, the jobs-hire rate and the quits rate—both signs of positive job churn—are below their pre-recession levels. But the decline in job churn started long-before December 2007, the official start of the recession.

The decline in mobility between jobs has puzzled economists and continues to do so. But one recent paper offers an interesting and simple explanation for the decline in churn—the benefits of getting a new job might have gone down.

The working paper by economist Raven Molloy and Christopher Smith of the Federal Reserve Board of Governors and Abigail Wozniak of the University of Notre Dame actually seeks to understand the decline in inter-state mobility as it relates to the decline in churn. They found that the decline in Americans moving across state borders is due to the decline in workers switching jobs. So understanding the decline in job switching will explain the decline in moving to a new state.

The authors look at several explanations for why job movement might have declined, such as changes in where jobs are located across the country, increasing job polarization and difficulty in switching jobs because of having two working parents. But they find all of these explanations lacking. The hypothesis that they do come up with is that the return to switching jobs appears to have declined. The gains to staying at one employer hasn’t changed over time, but something has changed that makes moving to a new employer less attractive.

Molloy, Smith, and Wozniak speculate that the decline in this value has to do with two trends. First, the inequality of pay across business establishments has increased. Secondly, some evidence shows that increasingly high-skilled workers are employed by high-pay establishments and lower-skilled workers by lower-pay establishments. If these workers are already “well-matched” then there could be a risk of moving to a new employer.

The authors, however, are very clear that their hypothesis and dual explanation are speculative. And of course, the research is only at the working paper stage. But if this explanation holds up then our understanding of the labor market might need some updating. Our economy may be just as dynamic as in the past, but without the labor market churn we’ve seen in the past. Horace Greeley may have been right in the past, but in the future economists and policymakers need to better understand this new job-churn situation.

July 14, 2014


Job Mobility

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