What if There Just Aren't Enough Jobs to Go Around?
By: ANNA LOUIE SUSSMAN
With lackluster job growth over the past six years, the U.S. labor market-by some accounts-has become a stagnant place where fewer people switch jobs and workers linger in the same roles for longer.
Recent research exploring the causes of this declining labor-market dynamism has focused on supply restrictions, such as state-based occupational licensing regimes, which make it harder for licensed workers to relocate across state borders, or prohibitively high rents in job-rich cities, which impede mobility. A drop in labor-market fluidity reduces overall employment rates, affecting younger and less-educated workers most of all, research by economists Stephen Davis and John Haltiwanger shows. White House economist Jason Furman has also cited occupational licensing as a barrier to job fluidity.
A new paper says the problem is not supply. It's that firms just don't have enough demand for labor.
That's the key finding from " Declining Entrepreneurship, Labor Mobility and Business Dynamism: A Demand-Side Approach," by economist Marshall Steinbaum and Mike Konczal, both of the left-leaning Roosevelt Institute.
The authors arrive at that conclusion by looking at the correlation between earnings growth and changes in mobility for 741 metropolitan areas between 2000 and 2015. If factors like housing restrictions-picture a San Francisco one-bedroom now going for $4,000 a month-were responsible for declining mobility, we would expect San Franciscans to have seen their mobility plummet, and earnings rise in response to scarcity. Instead, San Francisco's healthy job market has kept mobility and earnings high, thanks to strong demand for workers. Other areas with high demand for workers-think fracking hubs like Williston, N.D.-also had high mobility and high earnings growth over the period studied.
By contrast, take Albuquerque, N.M., which has abundant housing and few building restrictions. There, labor mobility declined-but so did earnings. In fact, that pattern held across the board: Declining mobility was correlated to declining earnings growth. To Mssrs. Steinbaum and Konczal, that makes it difficult to argue over-regulation of housing, for example, is the key factor weighing on labor dynamism, because ordinarily a scarcity of workers would lead to higher pay.
It's an explanation that's been suggested before by other economists and policymakers. In a June report, Mr. Furman also suggested that male workers, especially less-educated ones, were facing declining demand for their labor.
The Roosevelt authors say a key factor is the concentration of resources in the hands of managers and owners of large corporations-think of CEOs who are compensated largely in shares of the firms they oversee. This ownership encourages them to skimp on labor costs to further enrich themselves, in their analysis. That shrinking demand for labor then helps depress job-market dynamism. It also contributes to broader secular stagnation, since wealthier people tend to save more of their incomes.
They also note that fewer firms are entering the market, and smaller firms employ fewer people than in 2000. By contrast, large companies-those with 500 or more workers-have seen their share of employment rise since 2000, according to the paper. One explanation, endorsed by Mr. Furman, is that this decrease in competition raises the barriers to entry for new firms.
In this interpretation, with fewer places to work, and potentially fewer outside job offers, people cling more tenaciously to existing jobs. That can weigh on productivity, innovation and growth as workers stay put in their jobs rather than look for ones that might better suit them, or take the risk of starting a business. And it leaves fewer openings for new entrants to the job market, such as recent graduates.
While they are quick to say these results do not categorically disprove a supply-side explanation, they do provide "strong prima facie evidence favoring a demand-side explanation," as they write.
University of Notre Dame economist Abigail Wozniak, who has written extensively on labor mobility, said investigating changes in how firms treat workers was "a promising avenue for research," but said it was too early to definitively chalk up the fall in mobility to changes in market structure and growing corporate power. She also noted labor-market fluidity has been declining at least since 1980, a consistent trend even as other factors that affect large firms, such as tax policies and interest rates, have varied considerably.