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Tags: Pethokoukis | JPMorgan | business | job

AEI: America Is Beset By 'Economic Calcification' That Stops New Business Creation

By    |   Thursday, 04 September 2014 01:59 PM

The United States is suffering from "economic calcification" in which obstacles to robust business growth are hardening into place, according to a JPMorgan Chase research note cited by the American Enterprise Institute (AEI).

James Pethokoukis, AEI columnist-blogger, said the report reflects the long-term trend in America toward fewer business startups and less-than-healthy labor market churn.

"The consensus is building that the U.S. economy isn't just demand constrained but also faces some deep, structural, supply-side problems — and that harmful public policy is playing a role," he wrote.

Editor’s Note:
New Warning - Stocks on Verge of Major Collapse

According to Pethokoukis, a less dynamic economy generates less productivity and innovation, less hiring and a discouraged labor force and a lower natural unemployment rate.

The JPMorgan report concluded: "The churning that has long characterized the U.S. economy, the frenetic creative destruction of firms rising and falling, has become less frenetic recently. New business creation has trended lower, as has the normally massive amount of labor market reallocation. . . . Less churning in the economy can have beneficial consequences, but the reality is that the negative effects likely outweigh the positive effects. The symptoms of reduced churn look similar to Euro-sclerosis."

Pethokoukis said the data points assembled by JPMorgan economist Michael Feroli included: Net new job openings fell to 1.3 million at the end of 2013 versus 1.8 million in the 1990s; employment at new companies shrank to 0.7 percent of all jobs in 2013 from as much as 1.3 percent during the 1990s; and quarterly job reallocations (the sum of jobs gains and losses as a percent of employment) fell to 12 percent in 2013 versus up to 16 percent in the 1990s.

Feroli's report said an aging population and the supremacy of big-box retailers are playing a role in American's shrinking new business creation.

But Pethokoukis said Feroli's research note was also inspired by a paper delivered at the Kansas City Federal Reserve's conference in Jackson Hole, Wyo., in August.

The paper, "Labor Market Fluidity and Economic Performance" by economists Steven Davis and John Haltiwanger suggested that an increase in occupational licensing requirements and a growth in exceptions to the employment-at-will principle are also dragging down new business creation.

Davis and Haltiwanger's paper asserts that an increasingly less fluid job market in the United States is a reason for concern.

"For the unemployed, this development increases the risk of long jobless spells. For the employed, it hampers their ability to switch employers so as to move up a job ladder, change careers or satisfy locational constraints."

The pair said government regulations and policies also hamper jobs. "For example, government restrictions on who can work in which jobs have expanded greatly over time," they concluded. In addition, the fraction of workers required to hold a government-issued license to do their jobs rose from less than 5 percent in the 1950s to as high as 38 percent in 2008.

Davis and Haltiwanger lamented that firms no more than five years old accounted for 19.2 percent of employment in 1982, falling to 14.4 percent in 2000 and 10.7 percent in 2011.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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Finance
The United States is suffering from "economic calcification" in which obstacles to robust business growth are hardening into place, according to a JPMorgan Chase research note cited by the American Enterprise Institute (AEI).
Pethokoukis, JPMorgan, business, job
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2014-59-04
Thursday, 04 September 2014 01:59 PM
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