The slowdown of re-allocation (and productivity) in the U.S.

People are not losing low productivity jobs, becoming unemployed, and then getting high productivity jobs. People are staying in low productivity jobs, and new high productivity jobs are not being created. So the GR is not “cleansing”. It is, in some ways, “sullying”. The GR is pinning people into *low* productivity jobs.

This holds for firm-level reallocation well. In recessions prior to the GR, low productivity firms tended to exit, and high productivity firms tended to grow in size. So again, we had productivity-enhancing recessions. But again, the GR is different. In the GR, the rate of firm exit for low productivity firms did not go up, and the growth rate of high-productivity firms did not rise. The GR is not “cleansing” on this metric either.

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In a related piece of work Davis and Haltiwanger have a new NBER working paper that discusses changes in workers reallocations over the last few decades. They look at the rate at which workers turn over between jobs, and find that in general this rate has declined since 1980 to today. Some of this may be structural, in the sense that as the age structure and education breakdown of the workforce changes, there will be changes in reallocation rates.

But what Davis and Haltiwanger find is that even after you account for these forces, reallocation rates for workers are declining. No matter which sub-group you look at (e.g. 25-40 year old women with college degrees) you find that reallocation rates are falling over time. So workers are flipping between jobs *less* today than they did in the early 1980s. Which is probably somewhat surprising, as my guess is that most people feel like jobs are more fleeting in duration these days, due to declines in unionization, etc.. etc..

The worry that Davis and Haltiwanger raise is that lower rates of reallocation lower productivity growth, as mentioned at the beginning of this post.

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So we appear to have, on two fronts, declining dynamic reallocation in the U.S. This certainly contributes to a slowdown in productivity growth, and may perhaps be a better explanation than “running out of ideas from the IT revolution” that Gordon and Fernald talk about. The big worry is that, if it is regulation-creep, as Davis and Haltiwanger suspect, we don’t know if or when the slowdown in reallocation would end.

That is from The Growth Economics Blog, by Dietrich Vollrath, and it's worth reading in full.