Understanding Declining Fluidity in the U.S. Labor Market

Molloy, Raven S.; Smith, Christopher L.; Trezzi, Riccardo; Wozniak, Abigail

doi:10.17016/FEDS.2016.015

Working Paper

Understanding Declining Fluidity in the U.S. Labor Market

Abstract: We document a clear downward trend in labor market fluidity that is common across a variety of measures of worker and job turnover. This trend dates to at least the early 1980s if not somewhat earlier. Next we pull together evidence on a variety of hypotheses that might explain this downward trend. It is only partly related to population demographics and is not due to the secular shift in industrial composition. Moreover, the decline in labor market fluidity seems unlikely to have been caused by an improvement in worker-firm matching, the formalization of hiring practices, or an increase in land use regulation or other regulations. Plausible avenues for further exploration include changes in the worker-firm relationship, particularly with regard to compensation adjustment; changes in firm characteristics such as firm size and age; and a decline in social trust, which may have increased the cost of job search or made both parties in the hiring process more risk averse.

Keywords: demographic trends; hires and separations; job creation and destruction; job turnover; labor market churn; labor market transitions; labor reallocation;

JEL Classification: J11; J21; J30; J60; R23;

https://doi.org/10.17016/FEDS.2016.015