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The Great Stagnation

Haltiwanger's work featured in The New York Times and The Economist

According to a new paper by MPRC faculty associate John Haltiwanger and his colleague Stephen J Davis, employment losses during the Great Recession may have had more to do with long-term economic stagnation than with the recession itself. The paper argues that the share of Americans with jobs has declined because the labor market has stagnated in recent decades — fewer people losing or leaving jobs, fewer people landing new ones. This dearth of creative destruction, the authors argue, is the result of long-term trends including a slowdown in small business creation and the rise of occupational licensing, which has raised barriers to entry for occupations that once required little formal training. In recent years, court decisions have made it more difficult for firms to fire people. As a result, businesses have become more exacting about criteria for hiring and less likely to hire workers on a trial basis. Younger and less educated workers are the most strongly affected by this trend, because reduced fluidity in the labor market means fewer job opportunities for those whose careers are less well established.

“These results," write the authors, "suggest the U.S. economy faced serious impediments to high employment rates well before the Great Recession, and that sustained high employment is unlikely to return without restoring labor market fluidity.”

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