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Article Excerpt
Abstract:
There has been considerable debate as to whether job stability has declined in the United States. This paper uses data from the Survey of Income and Program Participation (SIPP) to examine the incidence of labor market turnover between 1986 and 1993. Specifically, we calculate one- and two-year separation rates and then analyze turnover by the source of separation. We find that the incidence of job separations did not increase over the period under investigation, but appears to have declined somewhat. When analyzing separations by reason, conditional on separating from an employer, we find little evidence of temporal changes in the composition of turnover that would indicate greater employment instability. Therefore, we do not find conclusive evidence that employment relationships have become more unstable in the recent past. (JEL J60, J63)
Keywords: employment stability, labor turnover
Introduction:
In spite of the current expansionary period, reports of corporate downsizing and increased use of temporary workers suggest that stable employment relationships may be a thing of the past. Even the chairman of the Federal Reserve, Alan Greenspan, invoked the perceived decline in employment stability as a possible explanation for the unlikely juxtaposition of tight labor markets and low inflation. Despite this pessimism, there is little research that documents an erosion in employment stability.
Data limitations and measurement problems impede empirical analysis of inter-firm mobility and as a result, there is little agreement concerning recent trends. For example, empirical research has relied on the use of synthetic cohorts, surveys with critical wording changes across years, lengthy recall periods, or panel data sets on select samples. These studies yield mixed results and exhibit sensitivity to corrections for differential response rates, non-comparability across surveys, and potential recall bias.
In this paper, we analyze recent trends in the incidence and sources of labor market turnover with data particularly well-suited to studying changes in labor market dynamics. We use several panels of the Survey of Income and Program Participation (SIPP) to compare the incidence of labor market turnover between 1986 and 1993, a period for which previous research indicates potential declines in employment stability. The SIPP panels provide key employer identification codes that permit identification of the dissolution of employer-worker matches and the calculation of separation probabilities that do not rely on synthetic cohorts. Moreover, the panels are large nationally representative surveys that use similar survey instruments over time and that do not rely on lengthy recall periods for employment history questions. Most importantly, the SIPP provides information on the reason triggering separations. We use this information to study temporal changes in voluntary and involuntary turnover.
We construct several measures of employment stability for the period 1986 to 1993. First, we calculate one- and two-year separation rates, defined as the probability of separating from a primary employer within one or two years of the initial month covered by the panels. We find no evidence that overall separation rates have increased between 1986 and 1993. In fact, the data indicate a reduction in turnover over the period. When analyzing separations by reason, conditional on separating from an employer, we find little evidence of temporal changes in the composition of turnover that would indicate greater employment instability.
Review of Recent Research:
The existing research on changes in employment stability takes one of two approaches. The first approach uses changes over time in tenure distributions and retention rates (defined as the probability that a person with t years of tenure will remain with their employer for a stated amount of time) to make inferences about changes in employment stability. The results from these studies are mixed at best. Using the Current Population Survey [Swinnerton and Wial, 1995; Diebold et al., 1997; Neumark et al., 1999] and the Panel Study of Income Dynamics [Rose, 1995; Diebold et al., 1997; Polsky, unpublished manuscript (1996); Marcotte, unpublished manuscript (1997)], researchers arrive at conflicting conclusions, possibly due to corrections for wording changes in the tenure and job attachment questions, treatment of non-responses, and treatment of self-employed.
The second approach looks directly at changes in the incidence and composition of workers displaced from their primary employers. Many of the worker-displacement studies find an increase in the incidence of firm-initiated separations. Using the CPS Displaced Worker Surveys, Farber [1993, 1997] finds that the incidence of involuntary job loss increased slightly in the 1990s compared to the 1980s. However, an increase in respondents that answer that they were displaced for "some other reason" accounts for much of this increase, thus raising the question concerning the source and nature of this observed change [Kletzer, 1998]. In an analysis of a sample from the Panel Study of Income Dynamics (PSID), Polsky [unpublished manuscript, 1996] and Boisjoly et al. [1998] find an increase in the proportion of involuntary separations, especially for workers with longer tenure. Using National Longitudinal Surveys, Monks and Pizer [1998] find an increase in the probability of job turnover during 1971 through 1990 that is accounted for by an increase in involuntary separations. In a study analyzing changes in the proportion of the unemployed that are permanently dismissed from previous job, however, Neumark and Polsky [unpublished manuscript, 1997] find no evidence of an increase in the incidence of overall involuntary separations.
In sum, the existing body of research suffers from several shortcomings, which may, in part, be responsible for the apparent lack of consensus. First, data limitations caused by changes in question wording and survey design make it difficult to compare stability measures over time. Moreover, conclusions concerning trends in stability often depend on how one corrects for these wording changes. Second, the existing research uses several alternative measures of employment stability, many relying on overall turnover or retention rates without regard to the causes of turnover, and others focusing exclusively on the incidence of involuntary separations. Few studies compare overall changes in turnover and changes by reason within the same data set. Moreover, there is very little research on the co-movements of trends in voluntary and involuntary turnover. This is particularly important since declines in voluntary turnover coupled with increases in involuntary turnover may yield stable overall turnover rates. In addition, a less frequently mentioned shortcoming of existing research is the fact that the synthetic cohort studies do not control for observed personal characteristics since the cohort construction necessarily requires data aggregation. Below, we present results...
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