Job Market Churn is Slowing: ERP #3

This is the third of four posts based on figures from the 2012 Economic Report of the President. For the first post and an overview, start here.

The U.S. job market has long been famous for its \”churn\” — that is, the simultaneously large inflows and outflows out of jobs which suggest a fluid and adjustable labor market. Thus, it\’s disturbing to observe a long-term trend toward less churn in the U.S. labor market. Here\’s a figure using the Business Dynamics Statistics from the Bureau of Labor Statistics:

Here\’s commentary from the Economic Report of the President: \”The rates of both gross gains and gross losses have been declining over time. Whereas, on average, 18.2 percent of private-sector jobs in the 1980s were newly created positions in startups or expanding firms, gross job gains fell to 16.8 percent of total private-sector employment in the 1990s and to 15.8 percent between 2000 and 2009 (Figure 6-3). Similarly, gross job losses were slightly more than 16.2 percent of overall private-sector employment in the 1980s but fell to 14.9 percent in the 1990s and then remained largely the same between 2000
and 2009. These secular declines also are apparent when one focuses more narrowly on startups.\”

Here\’s a similar pattern from another source: quarterly data from the Business Employment Dynamics (BED) survey.

What explains this drop in job churn over time, and is it a cause for concern? The report says (citations omitted): \”Now that researchers have documented the long-term secular slowdown in job gains and losses, the underlying reasons for the slowdown and its implications for the future of the U.S. economy are fast becoming the subject of an active debate. One possible reason for the slowdown in job reallocation is the aging of the population. Older workers may be less likely to become entrepreneurs, and research has documented a positive correlation between worker age and job tenure.\”

An aging workforce probably is part of the explanation. But one also wonders if there isn\’t another dynamic at work: for a variety of reasons, it may be getting harder to start up a business in the United States, and harder to be an employer. In turn, workers perceive fewer outside opportunities, and become more likely to stick with their present job. Or perhaps the U.S. labor market is becoming less fluid and adjustable in other ways.

Long-Term Unemployment in the U.S.

Andreas Hornstein and Thomas A. Lubik of the Richmond Fed write about \”The Rise in Long-Term Unemployment: Potential Causes and Implications.\” They define long-term unemployment as lasting more than 26 weeks. They write: “The share of long-term unemployment [as a proportion of total unemployment]  peaked at 46 percent in the second quarter of 2010, and averaged a bit more than 43 percent for all of 2010. This peak value for the share of long-term unemployment is significantly higher than the previous peak of 26 percent that was attained following the 1981–82 recession. Finally, mean duration of unemployment had increased to about 35 weeks by the middle of 2010, again a substantial increase over the previous peak for mean unemployment duration of 21 weeks after the 1981–82 recession. Never before in the postwar period have unemployed workers been unemployed for such a long time.”

Here\’s an illustrative figure. The left axis measures the unemployment rate. The right axis measures what share of the unemployed are long-term unemployed–more than 26 weeks.

Much of the rise in overall unemployment is due more people entering long-term unemployment than in the past, and to those who have been long-term unemployed having a harder time finding jobs than in the past. This is a potentially major change for the U.S. economy. This figure shows that over the 1968 to 2006 period, U.S. workers were employed in any given month had one of the highest chances compared to other countries of losing that job in that month, but at the same time, a U.S. worker who was unemployed in any given month also had the highest chance of finding a job that month compared to other countries.

The very high rates of long-term unemployment, and the difficulties that the long-term unemployed are having in finding jobs, suggests that the true unemployment picture may be even more grim than the headline statistics suggest.