Innovation can stagnate when workers remain in the same positions for extended periods. This isn't just a business problem—it affects entire economies by limiting growth and dulling living standards. Policymakers should invest in reducing labor market barriers (e.g., hiring barriers) and workforce training while creating targeted safety nets to balance flexibility with security.
A long average labor force tenure can lead to slower innovation and productivity growth in a nation. A 2017 study by Ul Haq et al. confirms this connection, finding that employees with higher tenure demonstrated less innovative behavior than newer hires, as recent employees actively pursued innovation to create positive impressions in their new roles.
This individual-level effect scales to national economic performance, as explored in studies on labor market rigidity's relationship with productivity. Indeed, a paper by Parello found a negative correlation between rigid labor markets and productivity growth, suggesting that labor market policies that promote flexibility can increase long-term productivity and innovation improvements. This perspective aligns with a substantial body of economic literature examining various aspects that decrease labor market flexibilities—from firing costs and unemployment benefits to human capital deterioration. These studies converge on a consistent conclusion: Rigid labor markets that foster extended tenure typically result in diminished productivity performance, ultimately hampering a nation's innovative capacity.
As such, it is particularly concerning that many nations have a long average labor force tenure. According to available data on 33 nations from the Organization of Economic Cooperation and Development, the average labor force tenure was roughly 10 years in 2023. Of these nations, Greece, Italy, and Slovenia had the longest tenures at over 12 years. In comparison, 2024 data from the Bureau of Labor Statistics shows that the United States, home to a robust innovation ecosystem, has the shortest average labor force tenure at 3.9 years. (See figure 1.) Although not included in OECD data, South Korea had an average labor tenure of 5.6 years in 2018, while Japan had a labor tenure of just over 12 years in 2022. It should be noted that the short tenure in the United States could indicate that the relationship between labor force tenure and innovation is an inverted U.
Figure 1: Average labor force tenure in 2023 for all nations, except the United States (2024), in years
To foster innovation-driven economies, policymakers should focus on reducing excessive regulatory barriers that prevent businesses from adapting their workforces. They should also invest in robust education and skill development programs to prepare workers for evolving industries. At the same time, creating safety nets that protect individuals without hampering necessary market adjustments is essential to maintaining both economic flexibility and social stability. By striking this balance between adaptability and security, nations can cultivate environments where innovation thrives, economic growth accelerates, and citizens enjoy rising living standards.
