It wasn’t long ago employers feared that the growing popularity of more portable employee benefits such as Health Savings Accounts (HSAs) might lead to a drop in workforce loyalty and employee retention.
Coupled with the ACA’s provision striking down preexisting conditions, HR professionals were fearful this would cause an exodus of workers who perhaps weren’t loyal out of choice, but rather because of their employer-sponsored healthcare coverage and yet-to-vest retirement benefits.
It turns out that these fears have been mostly unfounded. In fact, the rate at which employed workers move to new jobs has been depressed for more than a decade and has only recently approached levels seen before the 2008 financial crisis, according to data from the U.S. Census Bureau.
More precisely, and according to a Wall Street Journal article published earlier this week, 5.8% of U.S. workers switched jobs in the first quarter of 2018 (the most recent period available), compared to an average of 7% per quarter back in 2000 and 3% per quarter in 2009, the latter of which represents an historic low during this period.
Today's still relatively low level of job switching has economists calling into question a key economic model of our time, called the Phillips Curve. It predicts that inflation rises as unemployment falls, but that hasn't happened lately. So what's going on? And what does this have to do with employee retention?
Improved Employee Retention Insulates Wage Growth
Economists now believe they have the answer as to why inflation has remained in check and wages have edged up only slightly (3% in October vs. a year earlier), despite unemployment being at its lowest levels in decades; low rates of switching between jobs.
Changing jobs is often lucrative for employees. In the United States, those who switch jobs pick-up 4% more in pay than those who stay put, according to recent research by Giuseppe Moscarini, a labor economist at Yale University. In fact, 40% of lifetime wage growth for the average U.S. worker comes from job switching, rather than experience or skills.
Here’s how this typically comes to pass:
Employees can usually extract higher wages from their current employer if they have outside offers to leverage. For workers who switch jobs, they usually move into new positions better suited to their skills, and therefore extract better compensation from their new employer. These employees who jump ship also improve the compensation of loyal workers who stay put, by forcing those employers to enrich their compensation to protect the rest of the flock.
Job Switching and Wage Growth Still May Not Trigger Inflation
It should come as no surprise that it’s typically healthy, growing companies that are able to pay more to poach workers and expand. These companies tend to be more productive than their competitors, and often attract employees from those which are retracting. In turn, this boosts overall productivity. What this suggests is that even when job-switching and wage growth return to and/or outpace historic norms, nether may still not impact inflation.
Why The Slowdown In Job Switching?
While employers have been more diligent than ever about designing employee benefit programs with employee retention in mind, several socioeconomic factors are most likely playing a much larger role in keeping job switching at bay;
- An Aging Population: Steven Davis, and economist at the University of Chicago, points to an aging population. “Older workers are less geographically mobile and are less likely to quit to take a job or seek employment in new locations,” he says. “Spousal employment, kids, homeownership are among the factors that make older workers less mobile.
- Increased Regulation: Increased regulation has also made the domestic labor market less fluid. According to the Department of Labor, the share of U.S. jobs requiring a license has more than doubled to 22% in 2018 from around 9% in 1950. This shift has suppressed job mobility.
- Employment Uncertainty: Economists also point to heighten worker perceptions of risk as another factor tempering job switching. From fears about globalization, automation and artificial intelligence to a forecasted market correction and economic downtown, new hires may fear they will be the first to be let go when cuts are necessary.
The Impact On Employee Benefits
With workers less willing to switch jobs, this provides some relief to employers who are worried about retaining top talent in the face of historically low unemployment. This unfortunately cuts both ways as it also makes it more difficult for employers to recruit talent from other organizations.
In that regard, employers with limited resources and manpower should focus their efforts on strengthening their recruitment benefits more-so than on retention. This might include such things as better onboarding, training and licensing programs, richer signing bonuses, generous moving subsidies and higher than average cost of living adjustments, just to name a few.
Discover how JP Griffin Group delivers employee benefits solutions to maximize employee recruitment and retention. Download our capabilities brochure today.