Flexibility is disappearing from the United States labor market

September 11, 2014

In the past 2 1/2 decades the United States work force has seen a drop in worker flexibility, and that has two of the country's top labor economists talking about a loss of economic strength.

A Reuters news article said that a research paper co-authored by the University of Chicago's Steven Davis and John Haltiwanger of the University of Maryland warned that because of the fluidity loss in the labor market, the U.S. could see lower productivity, wages and employment levels during the next few years.

Workers are not as diversified as before
The researchers found that since the 1990's workers have become more fixed in their job performances locking into certain jobs and that has combined with slow private sector job creation and job destruction to dampen down growth through the time-frame. Because of this, churn created by companies succeeding and failing and the number of workers between jobs has been heavily impacted. This is an area of strength for the U.S. economy and could be lost if the sluggish flow of workers continues.

Reasons abound for the downturn
The authors cited several contributing factors for the downward trend. Retiring baby boomers, older workers refusing to change jobs and large companies forcing smaller, less competitive operations to sell or go out of business were all factors in the fall, said the report. New regulatory and training benchmarks are also making it more difficult to replace workers and for candidates to join new professions. 

A Wall Street Journal blog took a different tack in that the flexibility is good mantra for the labor market. Giuseppe Bertola is a professor at EDHEC Business School, and prior to addressing the Federal Reserve Bank of Kansas City's annual Jackson Hole conference, he said that there may be some overall economic benefit from unemployment assistance and job protections.

"Rigidities can be beneficial in imperfect economies, where the flexibility that employers like is the other face of the precariousness that workers fear,"  he explained "Labor market rigidity can look better after a crisis that casts doubt on the efficacy of financial markets and shows that monetary and other macro policies cannot always prevent deep recessions." 

Davis and Haltiwanger's study added that between 1990 and 2013 the nation's job force experienced a steady "secular decline" of upwards of 25 percent. This could bode poorly for Americans with limited skills, which could lengthen unemployment time because new jobs aren't opening. It could also make it harder to change companies lengthening periods of unemployment because new jobs don't open as fast, making it harder to progress in a company or change employers.