Economists: Labor Market is Growing Less “Fluid”

A key focus at Jackson Hole annual economic symposium

Despite lingering concerns about the Ukrainian crisis, markets picked up steam last week, giving the Dow and S&P 500 their best weekly performance since April. For the week, the S&P 500 grew 1.71%, the Dow gained 2.03%, and the Nasdaq rose 1.65%.

Last week, headlines were largely dominated by the annual economic symposium in Jackson Hole that plays host to some of the world’s most powerful financial players. Though the format of the event is casual, central bankers, academics, and economists use the meeting to discuss important economic issues from the day. One key session from this year’s meeting centered on labor market dynamics.

Economic research suggests that the U.S. labor market is not as flexible as it once was and that the fluidity of workers between jobs is falling. According to results presented at Jackson Hole, factors like an aging workforce that is less likely to change jobs, higher training and regulatory requirements to take many positions, and dominant firms driving others out of business, are all contributing to the problem.

Importance of job-fluidity

Why does this fluidity matter? Part of what makes a labor market strong is the ability for workers to transition between jobs and industries as needs and conditions change. Across industries, researchers found a decline of about 25% in the rate at which jobs were created and eliminated between 1990 and 2013. The implications of this decline could be particularly serious for the young or the less skilled, who may struggle to find jobs or progress in their careers.

Federal Reserve Chair Janet Yellen seems to support this view, painting a picture of a still-fragile labor market that requires accommodative monetary policy

Federal Reserve Chair Janet Yellen seems to support this view, painting a picture of a still-fragile labor market that requires accommodative monetary policy in her speech Friday. In another big speech, European Central Bank President Mario Draghi stated that the ECB stands ready to provide further liquidity to boost the EU’s sluggish economy.

Looking ahead, Russia and Ukraine will be in the spotlight as Russian President Vladimir Putin and Ukraine President Petro Poroshenko are scheduled to meet on Tuesday. The S&P 500 is also bumping up against 2,000 points, a key technical milestone. Though we don’t place a lot of faith in technical indicators, investor psychology may come into play, and markets may experience some volatility as investors consider whether further short-term upside is likely.

ECONOMIC CALENDAR:

  • Monday: New Home Sales, Dallas Fed Mfg. Survey
  • Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence
  • Wednesday: EIA Petroleum Status Report
  • Thursday: GDP, Jobless Claims, Corporate Profits, Pending Home Sales Index
  • Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment