Job mobility and wage growth: evidence from the NLSY79

Monthly Labor Review, Feb, 2005 by Audrey Light

Data from the 1979 National Longitudinal Survey of Youth provide an unusually complete history of employment experiences; analyses of why workers separate from their employers, frequencies of these separations, and job mobility's impact on earnings reveal that today's labor markets are far more dynamic than previously realized.

Longitudinal data have contributed immeasurably to our understanding of individuals' labor market activities, especially when it comes to analyzing job mobility and wage growth. Without the ability to "see" workers move from employer to employer, we would know very little about why workers separate from their employers, how often separations occur, and how job mobility affects earnings. (1) Analyses of these issues have revealed labor markets to be far more dynamic than was previously realized.

One phenomenon that has received considerable scrutiny is the persistent, voluntary job mobility of young workers. In the mid 1970s, economists began using search-theoretic models to explain why information costs compel workers to systematically "shop" for a better job. (2) The idea is that workers cannot immediately locate firms where their skills are valued the most highly, so upon accepting a job offer they continue to search for an even better outside opportunity. Workers might also learn over time that their current job is not as productive as they initially predicted. New information regarding outside offers or the current job is predicted to lead to a worker-initiated job separation. Empirical researchers have used longitudinal data to determine which theoretical models are supported by the data and to identify the contribution of "job shopping" to life-cycle wage growth.

A related issue of long-standing concern is the effect of job immobility on wage growth. Human capital models predict that wages rise with job seniority when workers "lock in" and invest in firm-specific skills. Because these skills cannot be transferred to a new job if a separation occurs, workers and firms agree to share the costs and benefits of the investment--and the worker's return on the shared investment takes the form of within-job wage growth above and beyond any gains due to the acquisition of general (transferable) skills. A variety of agency models provide alternative explanations for upward sloping wage-tenure profiles. In these models, employers defer wages as a means of discouraging workers from quitting or shirking; stated differently, they require workers to "post a bond" as an incentive to sustain the employment relationship. (3) Longitudinal data have proved to be essential for assessing the merits of these theoretical models and identifying the effect of tenure on wages.

Knowledge of the relative contributions of job mobility and immobility to life-cycle wage growth is fundamental to a number of important policy issues. For example, the well-being of low-skill labor market entrants is highly dependent on whether they are consigned to a lifetime of low-wage jobs, or whether they can advance in the wage distribution via life-cycle wage growth. As a result, policymakers might ask what can be done to enhance workers' wage growth. If job-specific skill investments are an important source of wage growth, then policies that promote on-the-job training might be useful to the low-wage population. If "job shopping" provides the lion's share of wage growth, then programs that provide job-search assistance might be warranted.

Of course, not all job separations are worker-initiated quits, so it is equally important to focus attention on issues related to involuntary job displacements. Researchers have relied on longitudinal data to determine which workers are particularly vulnerable to layoffs; which industries are the most volatile; and how wages are affected in both the short run and the long run when workers are displaced from their jobs.

Advantages of NLSY79 data

Analysts have been studying job mobility and wage growth for decades, but they gained an important new data source when the 1979 National Longitudinal Survey of Youth (NLSY79) was launched. The NLSY79 plays a central role in this type of research because it provides an unusually complete history of each respondent's employment experiences, including a record of virtually every job held. In this section, the key attributes of these data are highlighted; additional details can be found in the NLSY79 User's Guide. (4)

During each interview, NLSY79 respondents report information on every job currently in progress or held since the last interview. When the first interview was conducted in 1979, respondents who were older than 18 retrospectively identified each job held since age 18. (The 12,686 respondents ranged in age from 14 to 22 at that time; 43 percent were older than 18.) For the younger respondents, the job history begins between ages 15 and 17. As a result of this sampling and data collection strategy, analysts can initialize respondents' careers at a uniform point in the life cycle (the 18th birthday, the first exit from school, and so forth) and obtain a remarkably complete record of jobs held from that point forward for a large sample of individuals.