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Economists Warn Labor Market Less Dynamic Since 1990

When economists compare the United States labor markets of today and in 1990, there is a stark contrast. A new research paper by economists Steven Davis of the University of Chicago and John Haltiwanger of the University of Maryland, which will be presented to global central bankers Friday, finds that today’s job market is far different than the one found in 1990.

The two economists argue that the labor market today is less dynamic, more sluggish and filled with discontented workers as they are stuck in one occupation. Listless is the term to describe the process of job creation and destruction in the private labor market.

According to the paper, the U.S. could very well lose one of its most economic strengths: the vigorous transition of employees between jobs and the blend of employment as companies fail and succeed. It is believed that the mix of workers entering into different positions in various companies helps amplify wages, productivity and overall employment.

What is the cause of this decline in the American workforce? The two economists list a number of factors, including an aging workforce that is unlikely to change careers, an extensive accumulation of regulations, a growing number of training requisites that make it difficult to attain workers and fire others and large retailers causing labor-efficient businesses out of the market.

Economists will inform the two-day Kansas City Federal Reserve Bank conference audience that these are only some of the issues that will likely create lower employment levels, a dire prospect for a country that already has millions of Americans unemployed, underemployed or confined to part-time jobs.

“The loss of labor market fluidity suggests the U.S. economy became less dynamic and responsive in recent decades,” the two economists conclude in their report, notes Reuters. “There are good reasons for concern. Sustained high employment is unlikely to return without restoring labor market fluidity.”

The two economists will cite data that analyzes industries, states and demographic categories, which then highlights that the rates of jobs produced and reduced between 1990 and 2013 actually suffered a “secular decline” of 25 percent.

Federal Reserve Chair Janet Yellen has repeatedly warned that she will not raise rates until the labor market fully recovers, which she thinks has yet to happen, according to remarks she made at the central bank’s annual symposium in Jackson Hole, Wyoming.

“The balance of evidence leads me to conclude that weak aggregate demand has contributed significantly to the depressed levels of quits sand hires during the recession in the recovery,” Yellen said.

Yellen added that the large number of long-term unemployed individuals may not be considered by hiring managers. This means that there is a limited employment pool than the jobless rate purports, which then means that there is a chance that wages could rise and push up inflation rates.

The Fed has slowly reduced its quantitative easing program this year as it now stands at $25 billion per month of bond purchases.

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