Disparity in Pay and the Fluidity of the Job Market

There is a longstanding and growing inequality in the incomes of Americans. That statement is woefully unsurprising, though the true terms of income disparity may be. It is often assumed that the rising inequality in earnings comes from differences within companies, when the senior high-level employees earn huge paychecks and their underlings make far less. Recent research indicates, however, that income inequality stems more so from differences in compensation across companies. Researches submitting to the National Bureau of Economic Research found that the growing dispersion of income, measured from the 1970s to 2010, was the result of increasingly unequal pay among different businesses.

These findings can do very little when engaged in a vacuum. In an article writing for Bloomberg, Peter Orszag relates that research to a study presented at the Federal Reserve conference this summer in Jackson Hole, Wyoming. The fluidity of the job market has decreased in recent years. Americans are staying at their current jobs longer. Indicators of this trend include the number of Americans moving across state boundaries for new jobs.

peter orszag

Are you chained to your current job?

Another chief piece of evidence for the stagnated fluidity of the job market is the relationship between job creation and job destruction. The rate that jobs are created and destroyed is only two-thirds as high as it’s peak in 1991. All the indicators show that this decline started prior to the recent recession.

These trends are not limited to any one industry or region. The decrease in job market fluidity is present across all states, in all major sectors, ages and genders. This decline in job turnover could also halt future productivity growth.

What we can assert from the studies is that people are hesitant to leave high (or even simply adequately) paying jobs for something they would enjoy more. Also, those with low-paying jobs have less accessibility to new opportunities. Earnings at different companies are growing more and more unequal and job turnover rates are falling. But why? It is unclear how closely these two findings are related, it is clear that these trends are having a surprising effect on the economy and hopefully policy makers are taking note.

from Peter Orszag Healthcare http://ift.tt/1x0RAqK

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