Friday, February 14, 2014

Job Turnover Rates in Utah

Eric Martinson, Economist

A question recently entertaining some labor supply and demand discussions is whether turnover rates are different according to age groups. The idea is basically this: some posit that the younger generation does not seem to have a mindset of “loyalty” or attachment to firms. The younger generation seems more likely to “job-hop” or to constantly be in a mode of shopping for the next job. The extent to which this mentality is pervasive in younger generations would be complicated to get at for a number of reasons, but it is a valid and interesting question.

One source of information that may lend itself to answering this question, at least in part, is job turnover data from the U.S. Census Bureau’s Local Employment Dynamics (LED) program. It provides a measure of turnover which is defined as follows: “The rate at which stable jobs begin and end. It is calculated by summing the number of stable hires in a reference quarter and stable separations in the next quarter, and dividing by the average full-quarter employment.” In this context, “stable” is someone who stays with the same employer through an entire calendar quarter. Important to note is that these data are defined as jobs which begin and end, they do not specify whether the ending of a job is due to a lay-off or a voluntary separation.

Before peeking into the data, let’s develop some hypotheses about the information we intend to examine. First, we   assume that “job-hopping” is more likely to occur at the beginning of one’s career rather than later. So, we should expect to see a job turnover rate consistently higher among younger age groups relative to older age groups.

Second, the economic climate will be an important determinant in turnover rates. The assumption is that healthier economic times allow workers to be choosy. Conversely, during economic slowdowns, workers are more likely to hang on to the stability of their current employment. We assume younger workers (or workers new to their vocation) are more sensitive to the economic climate. They typically have less to risk when switching employers during good times (not as heavily vested in company profit-sharing and similar compensation benefits, for example) while they may  be more willing to take or maintain lower wage jobs during a contracting business cycle compared to older workers.

Another important consideration, which deserves its own well-developed discussion, is to what extent employers may or may not be inducing loyalty among their younger workers. Are compensation, retirement and health benefits more or less attractive for younger workers today compared to those offered to the yester-generation? Does a changing landscape of broad compensation affect young and old workers to the same degree?

With these considerations in mind, what Figure 1 represents Utah’s job turnover rate over time (from first quarter 2001 to third quarter 2012) by age group.

Click graph to enlarge
As expected, younger workers have consistently higher turnover rates compared to older workers. What the data also imply is that the turnover rate among the younger age group is indeed more sensitive to the economic climate than that of older workers. Turnover increases significantly among younger workers during economic expansions. Better times imply more options for those interested in “moving up”, which should occur at a higher frequency among younger workers. Conversely, in times of economic contraction, young-worker turnover decreases noticeably compared to older workers.

Of added note is what appears to be an overall falling trend in turnovers among the older workers group over the last decade. It is hard to determine whether this is structural or cyclical, given the fact that the last decade saw two recessions, one of which was the worst we’ve seen since the Great Depression. Many of the older workers may have seen some losses to their retirement portfolios during the last recessions. As a result many may have opted to remain in the workforce, with the same employers, to gain back lost retirement funds.

What is also hard to determine is how much of the consistently-higher turnover rate for young workers is due to some generational mindset of greater “loyalty” to a job, if any, versus dawning careers  being prone to “job-hopping” at younger ages. What is apparent, though, is a more business-cycle-sensitive turnover rate among younger workers.

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