Roach, I was only able to find a pdf of a poster (
http://sitemaker.umich.edu/skonrath/...hy_decline.pdf). Did you find an actual paper?
From what I can see, the study finds a decrease not in capacity for empathy, but for frequency of empathetic experience. Students scored low in terms of questions like "I often have tender, concerned feelings for people less fortunate than me."
They also found a barely significant (statistically) decline in perspective taking, ie scoring low in responses to questions like "I sometimes try to understand my friends better by imagining how things look from their perspective."
To me, this doesn't necessarily indicate a decline in empathetic ability. It could be possible that the advent of certain digital means of distraction and communication have made opportunities for empathy occur with less frequency.