Data Point - Labor Dynamism - Granite Grok

Data Point – Labor Dynamism

My Data Point post on Business Dynamism is here – showing that the rate at which new businesses / start ups has slowed right down.  There is also a labor companion to this:

Labor Dynamism

“It’s not enough for an economy to generate jobs. There should also be a good amount of turnover in the labor market. Workers need to move around to find the best fit for themselves, not to mention higher pay from taking a new gig. A stay-put workforce is bad news.

Now net job growth is a product of total hiring minus total separations (including layoffs and quits), as measured by the Job Openings and Labor Turnover Survey. And as a Goldman Sachs memo points out, “a given level of net employment growth can be achieved with a high or a low level of gross turnover.”

So long as there is decent net growth, should we really care how it comes about? After all, as JPMorgan point out, the 231,000 average monthly job gains in the first half of the year was the best of any six-month period in this expansion. Actually, we probably should care about these job market internals. Goldman cites two reasons:

  • The first is that a less dynamic labor market is likely to see weaker wage growth as workers fail to move to jobs in which they are more productive. Fed research suggests that the impact on aggregate productivity growth could be considerable.
  • The second reason for concern is that a low-turnover labor market risks locking out the unemployed and marginally attached, in some cases permanently. This “hysteresis” effect is a second channel through which a lack of dynamism can reduce potential output.

More stasis means lower wages, less productivity, and higher long-term joblessness.”

(H/T: AEIDeas)

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