Slow workforce churn hints at economic ills
No one's getting fired anymore. And believe it or not, that's a sign the economy could be very sick.
Usually when media folk talk about "job creation" - "Economy adds 175,000 jobs in February!" - they're talking about net job creation. That's the number of positions added minus those eliminated. Churning around that oft-cited monthly tally are millions of workers swapping places, scoring newly minted jobs and losing or quitting existing ones.
Lately, however, that churn has gotten eerily calm.
The share of people getting laid off each month and, more disturbingly, the shares getting hired and quitting their jobs are near record lows. That's according to Labor Department data released last week and calculations from John Haltiwanger, an economist at the University of Maryland. Haltiwanger estimates that private-sector layoffs, hires and resignations are 21 percent to 26 percent below their rates two decades ago.
The decline in churn got dramatically worse during the Great Recession but it began earlier, around the turn of the millennium.
So why should people care if churn ain't what it used to be?
Because turnover is generally good for the economy. It means people are moving around and finding jobs that better suit their skills, which helps everybody become more productive.
Historically, the United States has had a much more dynamic labor market than many of its peers - such as the sclerotic labor markets of Western Europe - and economists believe this creative destruction has made the U.S. economy stronger. If there is a lot of turnover, people feel more comfortable taking risks, trying out new jobs, founding companies and so on, because they know that if their latest venture doesn't work out, they can always slot into a new opening somewhere else. (Think of Silicon Valley, where workers are constantly swapping places and abandoning safe jobs for ridiculous start-ups.) By contrast, if no one leaves his job, voluntarily or otherwise, employers have less reason to hire and workers are too scared to quit. This stagnation is self-reinforcing, and it drags on growth.
The decline in churn during the Great Recession alone probably shaved about 0.4 percent off gross domestic product annually for a period of 3.5 years, one study estimated.
Lest you think turnover is only good for big business, consider that it also helps people get raises. Job switching is one of the most important ways that workers - especially young workers - make more money. Wage gains from job changes account for at least a third of early-career wage growth. In other words, if workers aren't job-hopping, their living standards aren't improving as much. It may not be a coincidence, then, that the decline in labor-force churn has occurred alongside income stagnation.
Young people today, scarred by the scarcity of jobs during their formative years, may be even more reluctant to job-hop going forward. Just as "Depression babies" became overly risk-averse about investing and spending money, "Recession babies" might be afraid to leave an employer they dislike or that underpays them.
No one knows exactly why turnover has fallen so dramatically.
The most benign explanation is that people don't need to frequently "reallocate" their talents because - thanks to the Internet and sophisticated personnel analytics - workers and jobs already are matched as efficiently as possible. Yet if that were the case, all things being equal, we'd expect to see hearty wage and productivity growth. We've gotten neither.
Republicans might blame regulation. I am so far unconvinced that it's more difficult to hire or fire people today than in the past.
Perhaps greater uncertainty about economic policy conditions is somehow infecting hiring and firing choices.
Erik Brynjolfsson, an economist at the Massachusetts Institute of Technology, proposed that the decline in churn could be related to the fact that companies have become less labor-intensive. Firms might scale up or down not by drastically changing their headcount, as in the past, but by, for example, adjusting how much server space they buy.
A more worrisome explanation relates to the recently anemic U.S. start-up rates, as new firms are responsible for a lot of job creation and job destruction.
Because the source of the illness is unclear, the prescriptions are too. The best we can hope for is policies that promote worker flexibility, entrepreneurship and mobility (including, for example, health care and housing policies that don't make people feel locked in to their existing employers and locations, respectively).
In the meantime, I can only exhort: Workers and employers of the world, try to mix things up.
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