Changing Stability in U.S. Employment Relationships: A Tale of Two Tails

Abstract

We confront two seemingly-contradictory observations about the US labor market: the rate at which workers change employers has declined since the 1980s, yet there is a commonly expressed view that long-term employment relationships are more difficult to attain. We reconcile these observations by examining how the distribution of employment tenure has changed in aggregate and for various demographic groups. We show that the fraction of workers with short tenure (less than a year) has been falling since the 1980s, consistent with the decline in job changing. Meanwhile, the fraction of workers with long tenure (20 years or more) has been rising modestly owing to an increase in long tenure for women and the ageing of the population. Long tenure has declined markedly among older men; this trend may have spurred popular perceptions that long-term employment is less common than in the past. The decline in long-tenure for men appears due to an increase in mid-career separations that reduce the likelihood of reaching long-tenure, rather than an increase in late-career separations. Nevertheless, survey evidence indicates that these changes in employment relationships are not associated with heightened concerns about job insecurity or decreases in job satisfaction as reported by workers. The decline in short-tenure is widespread, associated with fewer workers cycling among briefly-held jobs, and coincides with an increase in perceived job security among short tenure workers.

Job Stability, Earnings Dynamics, and Life-Cycle Savings

“…At the macroeconomic level, we study the consequences of the secular decline in U.S. labor market dynamism (Molloy et al, 2016). We interpret the decline in labor market dynamism as a combination of fewer opportunities for job-to-job mobility and a shift in the aggregate job stability distribution, in line with the empirical evidence in Fujita (2018), Fallick and Fleischman (2004), and Molloy et al (2020). Lower labor market mobility induces two counteracting forces for welfare: reducing job offer rates on the job directly reduces wageladder dynamics, whereas a shift toward more stable jobs leads to better opportunities for human capital investment.…”

“…We rely on a steady-state comparison of two economies that differ in their macroeconomic labor market environment. We compare the results of our baseline economy to an economy that has on average a 1 percentage point lower quarterly separation rate and a 1 percentage point lower quarterly job-to-job transition rate but both economies have the same tenure distribution, following the evidence in Molloy et al (2020). The decline in the separation rates and job-to-job rates follows the estimated declines of monthly rates in Fujita (2018) and Fujita et al (2020).…”

“…In this section, we turn to the macroeconomy to explore the consequences of the secular decline in U.S. labor market dynamism (Fallick and Fleischman, 2004;Davis, 2008;Fujita, 2018;Molloy et al, 2020). Declining labor market dynamism captures the widely documented decline in labor market mobility.…”

“…For monthly job-to-job transitions, Fallick and Fleischman (2004) report a decline of 0.6 percentage points between 1994 and 2004, starting from around 2.8 percent per month. 23 At the same time, it has been pointed out that a lot of the decline in average transition rates resulted from the disappearance of very short-term jobs (Molloy et al, 2020). Despite the broad consensus regarding declining dynamism in the U.S. labor market, little is still known about its consequences.…”

“…For the average 25-year-old worker, the transition to the least stable job is associated with a welfare loss of 1.4 percent of lifetime consumption, but welfare costs can also exceed 10 percent for workers in stable and high-paying jobs early in life. At the macroeconomic level, we explore the decline in U.S. labor market dynamism as a combination of lower job-to-job mobility and a shift in the distribution of job stability, in line with the empirical evidence (Fallick and Fleischman, 2004;Fujita, 2018;Molloy et al, 2020). A less dynamic labor market leads to a welfare gain for labor market entrants.…”