Has the U.S. Job Market Been Suffering From a Lack of Trust?
People who have jobs are hanging onto them, and those who don't have jobs are still having trouble getting them, even though the unemployment rate has fallen sharply. New research says a decline in "social trust" may be a factor.
Since the 1980s, there's been a big drop in the fraction of Americans who say that most people can be trusted, from about 45 percent to about 30 percent, according to the General Social Survey, which the National Opinion Research Center has been conducting since 1972. The decline in trust might be spilling over to the working world, states the new paper [pdf], released March 3 by the Brookings Institution in advance of a conference next week.
People often find jobs through personal networks. If networks are fraying, more people have to find their jobs through formal channels, which can take more time and effort. States with bigger declines in trust had bigger declines in labor-market fluidity. The economists conclude that diminished social trust "may have increased the cost of job search or made both parties in the hiring process more risk-averse."
Labor-market fluidity is a measure of how frequently people change jobs and enter or leave the labor market. It can also be measured by the rate of job creation and destruction. The researchers find that fluidity has declined 10 percent to 15 percent and has been going down since at least the early 1980s.
The economists aren't sure of their trust theory, saying only that they "find evidence weakly suggestive of a role for declining trust." But it stands up better than most of the other explanations for less labor-market fluidity. For example, they cite earlier research that ruled out the popular theory of "job lock"—that people are more likely to hang onto jobs now than in past decades because they don't want to lose employer-provided health insurance. They also say rising inequality and demographic changes, such as an aging workforce and increased participation of women, "do not seem to account for the bulk of the decline."
They found that fluidity declined the most in the Pacific and Mountain states, which may be connected to a decline in company formation in the West.
Abigail Wozniak of the University of Notre Dame, a co-author of the paper with Raven Molloy, Christopher Smith, and Ricardo Trezzi of the Federal Reserve in Washington, said in an interview that the trust theory, while unproven, would explain both why employers might be reluctant to hire someone they don't know and why workers would be apprehensive about going to work at a place they know little about. Other research has tied declines in trust to weakness in overall economic growth, she noted.