Everyone is talking about the new Brookings study that shows that the U.S. economy is becoming less "dynamic". The study echoes an earlier paper by Decker et al. Basically, there are two measures of "dynamism": 1. firm churn, and 2. job churn. Firm churn (a name I just made up) is how many businesses are replaced by new businesses, while job churn (a name I did not make up) is how many people move jobs. Both firm churn and job churn are decreasing. Here are the pretty graphs from Brookings:
What's going on here? Before we start casting around for political explanations, let's think about how this could be a natural result of changing technology.
One big thing that has happened in America over the last 35 years is the coming of large chain stores and restaurants. Mom-and-pop businesses have vanished as big-box retail, and later Amazon and other e-commerce sites, have taken over. That would tend to increase firm exit and decrease firm entry. Ryan Decker confirms that employment at large firms has been increasing since the early 80s.
Should we be worried about that? Many people over the years have bemoaned the death of the mom-and-pop store or the local restaurant, but I'm not sure we should be too concerned. Go visit a poor country, and you'll see that every other family has a food stand or little clothing stall, etc. That kind of "entrepreneurship" takes guts and ingenuity, but it's born out of hardship, not opportunity. The birth and death of small family businesses is one kind of "economic dynamism", but not really the kind that leads to increasing living standards or technological progress. In the U.S., it's not clear from Brookings' data how much high-growth entrepreneurship has changed.
Another big thing that has happened is the overall productivity slowdown, as documented by Robert Gordon and others. That will tend to mean that fewer big new industries are appearing, as a percentage of the existing number. That's going to reduce firm churn. Of course slowing productivity growth is something we should be worried about, but it's not clear what can be done about that. It's also not clear how much of slowing productivity growth might actually be caused by reduced dynamism, though the global nature of the productivity slowdown hints that it's not the biggest factor.
How about job churn? Less firm churn will tend to mean less job churn, so that will account for some of the decrease in job-hopping. Health care "job lock" might be a factor. Population aging probably accounts for some of it (old people hop jobs less). Should we be worried about reduced job churn, above and beyond reduced firm churn? Maybe not, according to John Haltiwanger (who heads the team of which Decker is a part).
Anyway, I think that before we start running around blaming "big government", or increased American risk aversion, or anything like that for the decline in dynamism, we should wait for more careful analysis of the reasons for the trend (and Haltiwanger, Decker, et al. are on the job). Less "dynamism" could turn out to be an interesting non-story.
(Thanks to Ryan Decker for many of the links in this post.)