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Center for Data Analysis Report #08-06 on Jobs and Jobs and Labor Policy

September 2, 2008

Job-to-Job Transitions: More Mobility and Security in the Workforce

By

How secure are American jobs? Conventional wisdom holds that Americans are more likely to be laid off today than they were a generation ago and that globalization and corporate greed are putting more and more jobs at risk. Good jobs are being outsourced to countries where workers earn a frac­tion of American wages. The era of jobs for life is over; even long-time employees are no longer safe. Today, it seems, no job is secure.

This perception, like so much conventional wis­dom, is wrong. The stories that fill the media about decreasing job security are heart-wrenching indi­vidual examples of Americans in dire situations,[1]  but discerning whether American workers' job security in general has changed requires analysis of empirical data.

Government data show that American workers are substantially less likely to lose their jobs today than they were a generation ago. Today, many more workers change jobs voluntarily. The reports of middle-aged workers heartlessly laid off misrepre­sent the experiences of most Americans.

Conventional Wisdom

Conventional wisdom holds that American's jobs are increasingly unstable. A generation ago, diligent workers could count on lifetime job security with a single company. Businesses respected and protected their employees.

Today, the prevailing wisdom holds that this has changed. Corporate greed-or at least an increased focus on the bottom line-supposedly means that hard work no longer guarantees a lifelong job. Media stories about companies callously laying off long-time workers abound.[2]  Globalization is exposing workers to new competitive pressures. Good jobs are said to be disappearing overseas, leaving burger-flipping for Americans.[3]  For millions of American workers, a pink slip could arrive at any time. The very idea of a lifetime job has disappeared.

Anecdotes Are Insufficient

This conventional wisdom about out-of-control job loss rests on a weak foundation. It is not based on empirical studies of how job security has changed over time.[4]  Instead, it is based on heart-wrenching but anecdotal stories of workers who lost their jobs or reports about the number of jobs lost to foreign competition.

But such reports do not demonstrate anything. Sizeable job losses are natural in an economy as large as America's. The U.S. economy is in constant flux. Employers created 57.8 million new jobs in 2007 while ending 54.6 million positions.[5] XREF

 With tens of millions of jobs created and termi­nated each year, there will always be Americans who lose their jobs in dire circumstances. There are also tens of millions of employees who stayed with their employers and earned salary increases or who changed jobs for better pay. Individual tragic stories reveal little about whether workers in general are more likely to lose their jobs.

Facts Based on Data

Understanding how job security has changed over the past generation requires examining data trends instead of anecdotes. The Heritage Founda­tion analyzed data from the 1976-2007 Current Population Survey (CPS) and the March supple­ment to the CPS collected in a joint project of the Census Bureau and the Bureau of Labor Statistics. The CPS is a monthly survey of American house­holds that the government uses to estimate the unemployment rate and other economic statistics. In March of each year, the CPS includes a supple­mental survey that asks respondents about their income and employment in the previous year.

The Heritage Foundation adapted a methodology developed by the Bureau of Labor Statistics, com­bining data from the basic CPS and the March sup­plement to identify workers who changed jobs, became unemployed, or left the labor force over the previous year. Using this method, it is also possible to estimate whether these workers changed jobs voluntarily or involuntarily.

Voluntary vs. Involuntary Job Changes

It typically takes workers several weeks or months to find a new job after their employers fire them or lay them off. Workers who become invol­untarily unemployed rarely find work the week after leaving their old jobs. Workers who voluntarily change jobs, on the other hand, typically spend lit­tle time unemployed between jobs. They left their old employers because they had a better offer from another employer.

The fact that workers who voluntarily switch jobs usually spend little time unemployed between jobs makes it possible to use CPS data to identify the types of transitions that employees make.

  • An employee who changed jobs over the previ­ous year and at the time of the March survey was either unemployed or unemployed for more than two weeks between jobs is classified as an involuntary job-to-unemployment switcher.
  • A worker who switched jobs, was employed at the time of the March survey, and experienced two weeks or less of unemployment during the job change is classified as a voluntary job-to-job switcher.
  • A worker who was employed in the previous year but left the labor force at the time of the March survey is classified as a worker who leaves the labor force. No assumptions are made about whether the choice to leave the labor force was voluntary or involuntary.

These definitions are not perfect. Some employ­ees who lose their jobs do find new work immedi­ately, so some workers classified as voluntary job switchers are not. Conversely, some workers cur­rently unemployed left their old positions voluntar­ily, and some workers who leave their old jobs for new ones spend more than two weeks unemployed before starting their new jobs.

However, these definitions do reasonably approximate whether workers chose to leave their employers or not. This allows a factual examination of how job security has changed over time. For more details on these calculations, see Appendix A.

Job Stability vs. Job Security

The distinction between voluntary and involun­tary job changes is important. Concerns about decreasing job security are legitimate. Most people find unemployment painful. The unexpected loss of income and the risk of not finding a comparable new job affect families financially and emotionally. If employers have become more likely to lay off their employees, this will affect the well-being of millions of American workers.

Changes in job stability, on the other hand, should not worry workers or policymakers if they occur because workers switch jobs voluntarily. Most workers who do so prefer their new jobs to their old ones. Congress should not be concerned if Americans are more likely to change jobs today than they were a generation ago. If anything, that mobility demonstrates that Americans have more job opportunities and options than they had in the past.

Increased Job Security and Mobility

Chart 1 shows the probability that a worker left his or her job for any reason over the preceding year between 1976 to 2007.[6]  Workers are less likely to leave their jobs today than in the past. From 1975 to 1976, almost a quarter-24 per­cent-of workers separated from their jobs over the course of the year. By 2006 and 2007, that fig­ure had fallen to 20 percent.

CDA 08-06 chart 1

Charts 2 through 4 break down these overall sep­arations into job-to-unemployment, job-to-job, and job-to-outside-the-labor-force switches. They differ strikingly.

CDA 08-06 chart 2

CDA 08-06 chart 3

CDA 08-06 chart 4

Workers are much less likely to lose their jobs today than they were a generation ago. This proba­bility rises and falls with the business cycle, but the trend is steadily downwards. The typical worker had a 10 percent chance of losing his or her job between 1975 and 1976. Contrary to popular per­ceptions, the 1970s were not a golden era of lifetime jobs. Today, only 5 percent of workers lose their jobs over the course of a year. Job security has increased markedly over the past generation.

Workers have become more likely to move between employers voluntarily over that same time period. Unsurprisingly, workers are more likely to make voluntary job changes in good economic times than during recessions.

Again, however, the trend is clear. Between 1975 and 1976, only 8 percent of employees stopped working for one employer and promptly started working for another. Fully 12 percent chose to change jobs between 2006 and 2007. The labor market offers workers much more mobility than in the past. This benefits American workers. Increased mobility increases workers' choices and opportunities.

Women have also become much less likely to leave the labor force. Chart 4 shows the percentage of men and women who exited the labor force in 1975-1976 and 2006-2007. Men are no more or less likely to leave the labor force than they were in the past. Women, however, are significantly less likely to leave the labor force than they were a gen­eration ago. Of the women working in 1975, 11 percent left the labor force by the following March. The same was true of only 4 percent of women working in 2006. Society has changed over the past generation, and women are now much more closely tied to the labor force.

Examining Other Factors

Economists use regressions to examine relation­ships between variables in greater detail. Appendix B reports marginal effects, from probit regression esti­mates, on the probability of switching jobs. These regressions control for age, education, marital status, and geographic region. The Heritage Foundation used these probit estimates to calculate the change over time in the probability that workers would change jobs, controlling for these other factors.[7] 

Table 1 shows the change in 1975-1976 and 2006-2007 in the probability that workers will leave their job, be fired, switch jobs, or leave the labor force, expressed as a percentage of the 1975-1976 probability. The top row reports the overall change.

CDA 08-06 table 1

The results confirm the findings of the earlier analysis. The probability that both men and women separate from their jobs for any reason has fallen since the 1970s. Men are 6 percent, and women 10 percent, less likely to leave their jobs than in the early 1970s. Both men and women are significantly less likely to be laid off and more likely to change jobs voluntarily than a generation ago. Men are 39 percent more likely to change jobs and 46 percent less likely to lose their jobs. Women are now 29 per­cent more likely to move between jobs and 33 per­cent less likely to lose their jobs. Women are also 35 percent less likely to leave the labor force, while men's likelihood of leaving the labor force has not changed.

The belief that workers had more job security a generation ago has no factual basis. Workers have more employment options today than in the past but are much less likely to lose their jobs.

Age, Education, and Marital Status

Looking more closely at the data shows that these changes in job opportunities and job security have not been uniform. The subsequent rows show the change for specific demographic groups, estimated separately. The separate rows should be interpreted as the change in the probability over time for that demographic group. For example, men ages 25 to 34 were 38.1 percent more likely to make a job-to-job switch voluntarily between 2006 and 2007 than they were between 1975 and 1976.[8] 

Although younger workers are more mobile overall, over the past 30 years, the job-to-job mobil­ity of older workers has increased significantly more than the job-to-job mobility of younger workers. The increases in job security, however, have occurred relatively uniformly across age groups.

Among both men and women, the workers whose job-to-job mobility increased the most were workers without a high school degree. Workers with some college education or a bachelor's degree have seen smaller increases in mobility.

The vast majority of the decrease in women who choose to leave the labor force has occurred among married women. Such women are now 71 percent less likely to leave the labor force than in the 1970s. Among all other women, the rate of exiting the labor force has fallen by 18 percent.

Changes During the 1990s

Table 2 presents the same estimates for changes in job mobility since 1991-1992.[9]  This table shows how job transitions have changed more recently. Job mobility has not increased as rapidly since the early 1990s as it did in the 1970s and the 1980s. Men were 10 percent, and women 8 percent, more likely to choose to change jobs in 2006-2007 than in 1991-1992. Job security has continued to increase at a rather steady pace. Women are 29 percent, and men 46 percent, less likely to lose their jobs now than they were in the early 1990s.

CDA 08-06 table 2

CDA 08-06 table 3

The increasing labor force attachment of women has slowed since the early 1990s. Women are now only 11 percent less likely to leave the labor force than in 1992, indicating that many of the social and economic changes that lead women to stay in the labor force occurred before 1992.

The same trends evident since the 1970s contin­ued in the more recent period of 1992 to 2007. Older workers had a higher probability of changing jobs voluntarily, while the increase in job security was similar across all age groups. The job-to-job mobility gains have been greatest for workers with a high school diploma. Again, married women were the least likely to leave the labor force.

Changes by Industry

The preceding analysis does not show how job mobility and job security have changed within industries. Table 3 shows the probability by indus­try that workers will change jobs, lose their jobs, or leave the labor force in 2006-2007 and how that probability has changed since 1975-1976.[10] 

Workers in almost every occupation now enjoy more job security than in the past. The only excep­tions are telecommunications, utilities, and sanitary services. The most secure jobs are with the govern­ment. Civil service rules and public-sector unions ensure that it is virtually impossible to lay off gov­ernment employees. Only 1 percent of local govern­ment workers and 2 percent of federal or state workers lost their jobs in 2006-dramatically fewer than in 1975.

Perhaps surprisingly, manufacturing workers' job security has increased. Manufacturing employees were less than half as likely to lose their jobs in 2006 as they were in 1975.

The employees most likely to lose their jobs work in agriculture and construction: 11 percent of con­struction workers and 12 percent of agricultural workers lost their jobs and had extended spells of unemployment. While these are high job losses, this is far more job security than existed in these indus­tries 30 years ago.

Voluntary job changes are more common in many industries. Utilities and sanitary services workers are, probably unsurprisingly, the most likely to switch jobs: 22 percent of these workers in 2006 changed jobs by 2007. Utilities workers are more than 10 times as likely to change jobs today as in the 1970s. The second most mobile industry is businesses and repair services, 18 percent of whose workers changed employers between 2006 and 2007. This represents a 48 percent increase in mobility since 1975-1976. Transportation, manu­facturing, telecommunications, and government employees are also more likely to change jobs than in the past. However, agriculture, mining, construc­tion, and entertainment workers are less likely to choose to change jobs today than a generation ago.

Overall, job security and job mobility have increased in almost every industry.

Job Transitions by Earnings Quintiles

Job mobility has increased, and job security has improved over the past generation. However, the experiences of the average employee aggregates the experiences of workers at the top, middle, and bot­tom of the economic ladder and may not reflect the actual experiences of any group of employees. To examine labor market conditions for workers at dif­ferent income levels, The Heritage Foundation included controls for income quintiles.[11] 

Workers' chances of either switching or losing their jobs differ noticeably by income level. Chart 5 shows the probabilities that workers will choose to change jobs, become unemployed, or leave the labor force by income quintile. Low-income work­ers are more likely to experience all of these transi­tions than are high-income workers. The gap between low-income and high-income workers has shifted, however. The changing labor market has not affected all groups equally.

CDA 08-06 table 4

Table 4 shows how these transitions have changed over time by income group. Low-income workers' job security has improved disproportion­ately. Workers at the bottom of the economic ladder are substantially less likely to be fired than they were a generation ago. Men in the bottom quintile are now 60 percent less likely to lose their jobs than they were in 1975, while men in the top quintile are only 47 percent less likely to lose their jobs. Women in the bottom quintile are 44 percent less likely to lose their jobs than in the past, while women in the top quintile are only 33 percent less likely to do so. Low-income workers have enjoyed the greatest increases in job security.

On the other hand, high-income workers have benefited the most from increased job mobility. While workers in the bottom quintile saw relatively small increases in their probability of changing jobs, workers in the top quintile are substantially-84 percent to 86 percent-more likely to change jobs than in the past. Workers in the bottom quintile have become only slightly more likely to choose to change jobs. Voluntary employee mobility has increased, but primarily for workers outside the bottom of the wage distribution.

Mobility by Pension Status

Why has job-to-job mobility increased so sharply, and why for predominantly middle- and upper-middle-class workers? Research suggests that the transition from defined-benefit to defined-contribu­tion pensions has made workers more mobile.[12]  In a defined-benefit pension, the employer guarantees a set benefit to the worker after retirement, such as 1.5 percent of the worker's final salary multiplied by the number of years that he or she worked. In a defined-contribution plan, the employer contrib­utes a set amount to a pension plan owned by the employee-for example, by depositing an amount equal to 6 percent of the employee's earnings into a 401(k) account.

The structure of defined-benefit pensions often penalizes workers who switch jobs, costing them significant retirement income. Workers with defined-benefit pensions are often chained to their jobs with golden handcuffs, unwilling to leave because they do not want to lose a large portion of their pension benefits.

In the 1970s, defined-benefit pensions were the dominant pension plans. Two-thirds of workers with pensions in 1980 had a defined benefit pen­sion. Legal changes in the 1980s encouraged com­panies to start offering defined-contribution pensions, which do not penalize workers for switching jobs, and employers started doing so in large numbers. By 2003, that ratio had more than switched, with 70 percent of workers with pensions being in a defined-contribution plan.[13]  As this hap­pened, workers became more willing to switch jobs.

Starting in 1979, the CPS identifies workers that have pensions but does not distinguish between defined-benefit and defined-contribution pensions. Table 5 presents estimates of how job-to-job, job-to-unemployment, and job-to-outside-the-labor-force rates have changed for private-sector workers since 1979.

CDA 08-06 table 5

Job security improvements vary moderately by pension status. Workers who are offered a pension plan at work and participate in it saw a somewhat larger increase in job security than those without pensions and a noticeably larger increase in job security than workers who are offered pensions but do not participate in them.

Changes in job mobility, on the other hand, are almost entirely dependent on pension status. Pri­vate-sector workers without a pension plan, or those who did not participate in one that was offered them, were no more or less likely to change employers voluntarily in 2006-2007 than they were in 1979-1980. Workers with a pension account for virtually the entire increase in job-to-job mobility during this time period are 42 percent more likely to switch employers now than they were a generation ago. This strongly suggests that the increase in defined-contribution pensions has had a major role in enabling workers to change jobs. Mobile pensions have made for mobile workers.

Conclusion

It has become conventional wisdom that Ameri­cans have less job security today than they had a gen­eration ago, that globalization and corporate greed have put the jobs of even diligent workers at risk.

But like so much of conventional wisdom, this view is simply wrong. American workers are signif­icantly less likely to find themselves involuntarily or unexpectedly unemployed than they were a gener­ation ago. This is especially true for workers at the bottom of the economic ladder.

Workers today have more job choices available to them than ever before. Defined-contribution plans allow workers to change jobs without losing pension benefits, and American workers have embraced this freedom. Workers with pension plans are signifi­cantly more likely to change jobs today than they were in the past, giving them the opportunity to seek out jobs that more closely suit their needs.

Many Americans are understandably worried about their job security during this current eco­nomic weakness. Job security does rise and fall with the business cycle. However, policymakers should understand that American jobs are more secure today than in past years. Employers are much less likely to fire or lay off workers now than they were during the 1991 or 1982 recessions. The economy is going through difficult times, but workers have much less to worry about than they had 30 years ago.

James Sherk is Bradley Fellow in Labor Policy in the Center for Data Analysis at The Heritage Founda­tion. The author thanks Heritage Foundation intern Victoria Strokova, who performed the lion's share of the data processing and analysis.

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