Labor Lag

Economic policy problems

Why has the U.S. job market stayed so lousy for so long? The impact of the recession explains part of it, but it's not the whole story, according to a paper unveiled in September by economists Steven J. Davis and John Haltiwanger. Davis, of the University of Chicago, and Haltiwanger, of the University of Maryland, looked at employment trends across the country and concluded that a significant chunk of the problem predated the economic downturn.

The core issue is that older people are staying put in the jobs they have, creating less turnover and less movement. One consequence is that younger people are having trouble getting their foot in the door. That will have ripple effects for years to come. The longer it takes for someone to get his or her first job and the lower-paying that initial job is, the harder it is to gain skills and connections that allow someone to move up the ladder.

The labor force lock-up can be at least partially attributed to the cumulative impacts of longstanding government policies. Among them: expensive licensing requirements that make it more expensive to train workers, labor laws that make it harder to fire people, and favorable tax treatment for employer-provided health insurance.