Labor Market Fluidity: Many Proposals to Try to Explain it; None are Conclusive. Rank and Yank, However, Focuses on Persistent Workforce Displacement and Has Destructive Effects

Malloy, Raven; Smith, Christopher L.; Trezzi, Riccardo; Wozniak, Abigail (2016). “Understanding Declining Fluidity in the U.S. Labor Market.” Working Paper. Brookings Papers on Economic Activity. BPEA Conference Draft. March 10-11.

The paper presented ideas to achieve two goals–(1) determine whether various measures of labor market fluidity are related and (2) determine more completely when declines in fluidity began. The authors discussed a number of possibilities, but suggested more work to be done for most of them as the current work did not present clear answers. The authors stated that they found some relationship between a decline in social capital (trust of strangers) and a larger decline of labor market fluidity. The authors acknowledged more work is needed to explore even this relationship.

In reading the paper, I was struck by the attempt to explain human behavior in economic terms only. The paper would be stronger still if other social science disciplines were invited to explore these issues. All of the questions seems to have been proposed by economists, but the questions themselves involve sociology, political science, psychology, and maybe social work. Proper analysis would require involvement of these disciplines in order to make a proper contribution to policy.

Moreover, expectation of labor market fluidity can lead to bad policy, such as “rank and yank” programs, promoted by Dick Grote. Rank and yank forces a certain amount of turnover every year. In every case, such a broad brush approach has produced destruction. This result shows the danger of thoughtless consideration of policy implementation. This result could be reduced with thoughtful and full evaluation of social policy.

[Note: This paper was also summarized at Bloomberg Business.]

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