A defining characteristic of the U.S. labor market is its
fluid nature. Half of all new jobs (worker/employer
matches) end in the first year and, at any point in time,
about 20 percent of workers have been with their current
employer for less than one year (Farber, 1999a).1
This fluidity allows rapid reallocation of workers across
sectors in response to demand shifts, and the relatively
small direct costs to employers of laying off workers encourages
hiring in the face of uncertain future demand.
Rates of employment growth in the U.S. have dwarfed
those in Western Europe in no small measure because
of the relatively small costs to firms of shedding workers
in the U.S. compared with their counterparts in the
European Union. However, this flexibility can impose
substantial costs on the workers who lose jobs.