Policy Seminar on Labor Market Fluidity and Economic Performance: The Policy Implications

Thursday, February 19, 2015
George Shultz Conference Room, Herbert Hoover Memorial Building

Steve Davis, Mark Aguiar, Mark Bils, Nick Bloom, John Cochrane, Bob Hall, Rick Hanushek, Erik Hurst, Doug Irwin, Chad Jones, Tim Kane, Dan Kessler, Pete Klenow, Stephen Langlois, David Mauler, Monika Piazzesi, John Shoven, George Shultz, Alp Simsek, John Taylor

Steven Davis, the William H. Abbott Professor of International Business and Economics at the University of Chicago’s Booth School of Business, discussed his work with John Haltiwanger on “Labor Market Fluidity and Economic Performance.”

Davis began by reviewing documentation of declines in worker reallocation and job reallocation rates in US labor markets. He explained how these trends hold across states, industries, firm size and age categories, as well as demographic groups. Davis suggested a number of factors that might explain this decline in fluidity. These include a shift to older firms and establishments, a shift to larger businesses in retail trade, an aging workforce, and policy developments that suppress reallocation. Davis presented evidence that erosion of employment-at-will is particularly to blame.

Davis concluded by voicing concern over declines in fluidity. He presented evidence that reduced fluidity negatively affects employment, especially for those with limited skills. Therefore, a return to sustained high employment in the US is unlikely without restoring labor market fluidity.