Employment

U.S. Labor Market Is Losing Flexibility, and That's a Bad Sign For Jobs

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| MTA Photos/Foter

Last week we heard from the Bureau of Labor Statistics that job growth in August was disappointing—and that labor force participation is as low as it's been in decades. Last month, a Brookings Institution study said our economy is is increasingly dominated by older, established firms, with a decline in entrepreneurship of the sort that drives innovation and job growth. Now, a paper from Steven Davis of the University of Chicago and John Haltiwanger of the University of Maryland says American job markets have become less fluid. There's less shifting among jobs and reduced "churn" (hiring and firing) at least partially because of increased dominance of the economy by large, established firms. Just as bad, the labor markets are increasingly burdened by regulation. This is a problem, they argue, because "reduced fluidity has harmful consequences for productivity, real wages and employment."

I can't be the only one seeing a pattern here.

Government regulation almost certainly plays a big role in the increased dominance of the U.S. economy by large firms. The Index of Economic Freedom points out, "the overall cost of meeting regulatory requirements has increased by over $60 billion since 2009, with more than 130 new regulations imposed." The Fraser Institute's Economic Freedom of the World: 2013 Annual Report (PDF) is tougher, noting that that "To a large degree, the United States has experienced a significant move away from rule of law and toward a highly regulated, politicized state."

While the Index insists "The labor market…remains flexible," this is not a regulatory environment conducive to the creation of new firms without politicial connections and inexperienced in navigating red tape. It is an environment that advantages large, established firms that can survive the bureaucracy—but which don't make for the fluid job markets that Davis and Haltiwanger find so beneficial.

And there's a real question as to how flexible America's labor markets remain. Davis and Haltiwanger write:

[G]overnment restrictions on who can work in which jobs have expanded greatly over time…the fraction of workers required to hold a government-issued license to do their jobs rose from less than 5 percent in the 1950s to 29 percent in 2008. Adding workers who require government certification, or who are in the process of becoming licensed or certified, brings the share of workers in jobs that require a government-issued license or certification to 38 percent as of 2008.

They add that "the spread of occupational licensing and certification raises the cost of occupational mobility." They also point to other regulations, such as minimum wage rules and the erosion of employment-at-will, which "reduce labor market fluidity, sometimes by design."

The Economist points out that the heavily regulated labor market is a model that has proved disastrous for economic dynamism and the simple ability to make a living elsewhere.

In Spain, for example, centralised wage bargaining and other protections for workers made it difficult for employers to sack permanent employees or cut their wages (these rules were recently eased). Instead, firms hired armies of temporary workers, who bore the brunt of the massive job losses that began in 2007.

America has long been an exception where workers might lose jobs but could easily find new ones—and where it was relatively easy to take risks with the new businesses that created those new jobs. As that changes, we risk sinking into the doldrums that have given Europe such a sluggish economy, and which may have already gained a foothold here.

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  1. To politicians and those in power, stasis is a feature, not a bug.

    1. Barack Hussein Obama, mmmmmm mmmmmmm mmmmm!

      1. I am certainly no fan BHO but I don’t think he is the sole cause of the current state of the country. This fascism has been cultivated over decades.

        Politicians have become more polarized as have their constituents. Worse, the politics has become the mission of many politicians with their primary motivation being reelection.

        There is hope though and it comes from the ranks of the so-called millennials. Young people today live lives that are less centralized and they are more inclined to want distributed power, greater choice, more direct control and more immediate results.

        Most importantly perhaps, they are better-educated meaning they will be better equipped to understand the complexity of the interactions of government, business and personal freedom.

  2. Our economy is getting worse and worse. Time to kick the bums and their scams permanently out of Washington. If we don’t get rid of the government’s literally insane spending, constant intervention in markets, regulatory morass, and general unlimited powers, we’re going to continue to decline.

    Yes, we’re in a decline that will not stop if we don’t take action very soon.

    1. Concur. Have been saying something similar for over a decade.

      “Problems with the economy? If the goddamn government would just get out of the way that shit would get fixed in like, a year.”

      1. (Yes, hyperbolic and overoptimistic. Still, it would solve the problem, but no politician will go for it because they couldn’t claim the credit for having “Done Something”.)

      2. A year? Shut down the government completely and we’ll all be rich and fucking supermodels in 3 months.

  3. with a decline in entrepreneurship of the sort that drives innovation and job growth

    What are you talking about? Everyone knows that all innovation comes from government! Government invented the transistor, the computer, the internet, the wheel, fire, everything!

  4. Time to kick the bums and their scams permanently out of Washington.

    Never happen. Everyone will continue to support their TEAM, even as their TEAM continues and expands the policies that have us already circling the drain.

      1. A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.The average age of the world’s greatest civilisations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to complacency; From complacency to apathy; From apathy to dependence; From dependence back into bondage.

        We’re pushing 240 years. Not a bad run, I guess.

        1. See en.wikipedia.org/wiki/Alexander_Fraser_Tytler

          The cited article talks about, in part, the attribution of the quote. Regardless of the identity of original author/s, I think it is fair to say that there is historical evidence to support the overall thesis. Most notably is the ancient example of the Roman Empire and the more current example of Greece.

          In the case of the latter, the economy has failed repeatedly since 1832; since Greek independence from the Ottoman Empire.

          The primary reason for the failure of the Greek economy and the failure of the Roman Empire is government largess to mollify the masses of their misery and to ensure the reelections of those that govern.

  5. In Spain, for example, centralised wage bargaining and other protections for workers made it difficult for employers to sack permanent employees or cut their wages (these rules were recently eased). Instead, firms hired armies of temporary workers, who bore the brunt of the massive job losses that began in 2007.

    “But we didn’t mean for all of those intended consequences to happen! It’s just not fair!”

    1. *unintended consequences, rargh!

      1. “Foreseeable consequences are not unintended.”

        1. The members of our government, both elected and unelected, see themselves as experts in all fields. The true “oracle” of society is the free market. When government is once again relegated to its role of organizing society instead of micromanaging it, then the markets will decide the fitness of society’s endeavors.

  6. Last month, a Brookings Institution study said our economy is is increasingly dominated by older, established firms, with a decline in entrepreneurship of the sort that drives innovation and job growth.

    more regulations please.

  7. Last month, a Brookings Institution study said our economy is is increasingly dominated by older, established firms, with a decline in entrepreneurship of the sort that drives innovation and job growth.

    David Stockman’s opinion on the job market is particularly scathing. He argues (convincingly, I might add) that the real job market in the U.S. has been drive and dominated by the health and education service industry since 2000 and that a net loss of real wealth jobs has been occurring since 2000. He posits that the much-vaunted “recovery” has only seen a resurgence of jobs previously lost to the various recessions and that, in reality, real wealth jobs (manufacturing, construction, mining, distribution, etc. are being driven away by the economic stumbling blocks placed by the government on everybody’s path.

    http://davidstockmanscontracor…..or-market/

    1. That would be “driven and dominated by…”

      1. Don’t you just hate it that we cannot edit our remarks!

    2. Education WILL be changing. I see the coming demise of brick-and-mortar schools. It is already happening as well-designed computerized instruction has already been proven more efficient and flexible.

      There will be a place for teachers in virtual classrooms but only to shepherd students through the rough patches.

  8. The Economist points out that the heavily regulated labor market is a model that has proved disastrous for economic dynamism and the simple ability to make a living elsewhere.

    The little red Marxians at The Economist said that? Please send them a congratulatory note from my part: “Dear No-Shit-Sherlock bloviators, thank you for pointing out what has been obvious to everybody else for 100 years now.”

    1. TRUE!

  9. Obviously we must bring in some more immigrants to help this pressing problem.

    *dodges open border fruit*

  10. Interesting how people who claim to hate greedy corporations and want us to go back to mom and pop shops always support these regulations, taxes and licensing fees that further entrench the corporations and make opening and mom and pop store next to impossible.

    1. Neofeudalists.

    2. Only people who are bereft of logic think that the “good old days” are better than today. Well, them and those of us who lived during the good old days anyway.

      Also, only some corporations are hated: ExxonMobil is hated but Apple isn’t. ExxonMobil makes more dollars in profit but does it on margins of 7% whereas Apple’s margins approach 60%. ExxonMobil makes or derives many of its products from domestic sources and Apple imports 100% of its products from China.

      SHEESH!

  11. I am the 38%.

  12. Yes, it is most definitely the old-corporations’ faults and the lack of entrepreneurs
    While I concur with the concerns about lack of entrepreneurs, it is not surprising based on the hostility in this country toward business in general and the cronyism that is erecting barriers to entry in favor of the old-school crony corporations through political graft and pull.
    But there is another factor seriously overlooked and it is where the bulk of the blame lies whether you choose to recognize it and identify it or not – individuals!
    Corporations that exercise cronyism should not be supported (as in don’t buy their products and services). Politicians that engage in favoritism should supported either (as in don’t re-elect them). And individuals who do not ‘shift’ to different job sectors are symptoms of the dependency, pro-union, entitlement mindset that exists in this country.
    I specialize in web development but I am currently learning welding skills and in the past picked up landscaping including knowledge on running a number of pieces of heavy equipment, electrical system maintenance and sprinkler maintenance. I have worked security, regularly keep up on electronics, robotics, graphics design, technical writing, and technologies like arduino, metal and wood fabrication and a number of other pursuits. I have supported myself buying-and-selling between jobs, played in bands and even done book-keeping, small business management and any odd-job I could pick up.

  13. It is not the responsibility of businesses and entrepreneurs to create jobs and careers for individuals. It is the responsibility of individuals to maintain marketable skills that businesses are interested in paying to utilize. (and no government is ever going to be able to create value from nothing – governments can only siphon off of the value of others)

  14. Well here we are again. At the beginning of the year they were claiming unemployment rates are decreasing. And I do agree that it’s getting harder and harder to find a new job each year, unless you are flexible of ready to take on a job on questionable working conditions. Or there is an option to rely on professionals for resume writing and hope you’ll get noticed by some decent employer. My younger brother was lucky enough to get a job like that. But anyway, officials should do so much more to stabilize labor market asap.

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