Raven Molloy and others, in a paper for a Brookings conference, show that there has been a largely unexplained decline in the rate of job switching and other measures of what they call labor market fluidity over the past three decades. Pointer from Nick Bunker via Mark Thoma.
My thoughts turn to the four forces, and in particular to globalization and the rise of the Internet. Think of three margins of substitution:
1. Substitute American workers for other American workers.
2. Substitute foreign workers for American workers.
3. Substitute capital equipment (including computers) for American workers.
If the elasticity of substitution has gone up for (2) and (3), might it not follow that we would see less of (1)? In more concrete terms, if a firm wishes to expand, nowadays it can increase production overseas or use more capital equipment, rather than hire more American workers. That would reduce (domestic) labor fluidity.
There may also be some correlation (possibly indicative of motivations?) with a “slowing down” of the rates and kinds of territorial or regional mobility that occurred from about 1940 to 1970, by which latter date the WW II generation was reaching a particular point of maturity and (possibly) communal outlook.
Wait, this can’t be right. Aren’t we constantly told how fickle today’s labor market is? How there has been a steady decline in the ability to stay with one firm?
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Ever increasing specialization is favored by employers to drive growth and employees to insulate against commodification. As our jobs more and more narrow, we have less and less substitution.
I would say 3 does not necessarily counter 1 as investment shifts skills needed but current account imbalances generated by 2 thwart this until 2 loses its effectiveness.
Other aspects to consider:
1) Most offices cut first and ask questions later. So the survivors have the highest marginal product but also more essential to the process.
2) When companies offshore work that limits their “Talent Farm Team.” So all the grunt work is done offshore then new workers don’t get experience with the organization. This has been one reason our office has not seen layoffs in years.
How much of the decline in labor market fluidity is driven by the decline in geographic fluidity, and how much of the decline in geographic fluidity is driven by 2-income households? Especially when the two incomes are in different industries, the problem of trying to match 2 people in a new geographical location gets tough and the opportunity cost of 1 person requiring several months to find a new fit in a new location is large. Even within a metro area, behavioral studies show that 2-income households have an aggregate commuting limit (usually 1.5 hrs/day combined between both earners), which can operate as a binding constraint on alternate employment
More common deep specialization in a company specific product or process. At my Big Company, I joined and learned a lot about a big program (BH), was actively working on in thru the pilot and wave 1. After 4 years and huge cost, it was put on hold. I moved to CCMS, and became a Subject Matter Expert — it was sunset last month. Many years of specialized study & learning — all now utterly useless to any other org, and almost useless to my own company.
I’m now working on its replacement, RDC (doesn’t matter what complex system the acronym stands for).
The fragile value of deep specialist knowledge in the technical areas where productivity is being increased — most of this knowledge has no value to other orgs.
This is not a substitution effect, but a “technical fragility” effect, where much of the high value of a high-knowledge worker depends on the company unique systems they are knowledgeable about.
I would say the most common error I see in macro analysis is failing to consider international effects, looking at countries as closed systems.