A less dynamic economy and its effect on younger workers

by Ryan Streeter on August 27, 2014. Follow Ryan on Twitter.

There is less churn in our economy, which is concerning:

Many factors contributed to reduced fluidity: a shift to older firms and establishments, an aging workforce, the transformation of business models and supply chains (as in the retail sector), the impact of the information revolution on hiring practices, and several policy-related developments.

The problem is this:

The loss of labor market fluidity suggests the U.S. economy became less dynamic and responsive in recent decades…These developments raise concerns about productivity growth, which has close links to factor reallocation in prominent theories of innovation and growth and in many empirical studies. The high-tech sector’s sharp drop-off in business entry rates and in the incidence of fast-growing young firms after 2000 reinforces this concern…Our econometric evidence supports the hypothesis that reduced fluidity lowers employment rates, especially for younger and less educated workers.

That’s from a paper by Steven Davis and John Haltiwanger, via Jim Pethokoukis.