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Federal Reserve Bank of St. Louis - Regional Economist, Jan 2005 by Engemann, Kristie M, Friedberg, Leora, Owyang, Michael T

The Causes Behind Declining Job Tenure

Over the past quarter-century, it has become remarkably less common for people to work for the same employer for most of their working lives. The reduction in tenure can have a number of effects on the labor market, including a decline in the tendency of employers to offer tenure-based benefits such as traditional pensions. Policy-makers must be wary of these changes because they may affect the costs associated with frequent changes in employees' health care plans, increased rates of 401 (k) plan rollovers, and reallocation of resources to job search and vacancy posting.

An examination of the trends shows that the average return on each additional year of tenure has fallen for both workers and employers. Possible causes for the decline in tenure are changes in demographics, changes in technology and changes in such labor-market institutions as unions and international trade.

Basic Facts on Job Tenure

Economists Leora Friedberg and Michael Owyang computed changes in average job tenure between 1983 and 1998 for full-time workers aged 22-59. Figure 1 shows average tenure in one's current job, broken down by sex and years of potential experience in the workforce.1 For men, average job tenure steadily declined, from 9.2 years in 1983 to 8.6 years in 1998. During this period, average tenure fell by 1.1 years for men with 0-5 years of potential experience, a particularly sharp decline at that stage of the career, while those with 16-25 years of potential experience witnessed a decline of 1.4 years. Males with 6-15 years of potential experience saw a smaller, yet still significant, decline of 0.6 years.2

Friedberg and Owyang found related, though more complex, trends for women. Their average tenure actually rose from 7.2 years in 1983 to 7.9 years in 1992 before falling again to 7.2 years in 1998. The rise over the intervening period at least partly reflects the increased tendency of women to be in the labor force. The change in overall average tenure between 1983 and 1998 looks different for younger vs. older women for reasons we address later. For women with 15 years or less of potential experience, overall average tenure declined by a little less than one year. In contrast, women with 26-35 years of potential experience saw their average job tenure increase by 1.2 years.

The most recent Bureau of Labor Statistics release on employee tenure highlights these trends, focusing on reductions in the percentage of workers who have at least 10 years of tenure with their current employer, which is one way to think about a long-term tenure rate. Not surprisingly, each age category for men shows a drop in this long-term tenure rate between January 1983 and January 2004, with an overall decline of approximately 5 percentage points. The story for women again differs from men's-an overall increase of almost 4 percentage points-for the same reasons as above.

Most of the recent literature, including several 1999 studies primarily conducted by economists, confirms that job tenure has fallen since the 1980s.3 However, some disagreement remains, depending on the source of the data for the study, although analyses using most data sets show the same results that Friedberg and Owyang found."

Expected Remaining Tenure

Friedberg and Owyang also tracked changes in expected remaining tenurethe number of years that employees expect to continue working for their current employer-over the 1983-98 period. Figure 2 gives a graphical representation of expected remaining tenure, broken down by sex and years of potential experience in the workforce. They found that for each level of potential work experience, both sexes experienced declines in expected remaining tenure over the entire period. For both sexes, the decline in expected remaining tenure was greater for more-educated workers than for less-educated workers.

Expected remaining tenure for males fell from 18.0 years in 1983 to 15.9 years in 1992 and then to 14.1 years in 1998. Expected remaining tenure declined the most among men with the least potential work experience. For instance, those with 0-5 years saw it fall from 18.3 years in 1983 to 16.7 in 1992 and finally to 10.6 in 1998, for a total of 7.7 years. Those in the 6-15 years category saw a 5.7-year decline in expected remaining tenure, whereas expected remaining tenure among workers with 16-25 and 26-35 years of potential experience declined by 3.9 and 2.2 years, respectively.

The same pattern holds for women, in contrast to the swings in current tenure. Females with less than 15 years of potential experience saw the largest declines in expected remaining tenure, of over 5 years.

These findings show that the decline in job tenure does not reflect a one-time job switch, but, instead, a general shift in workers' expectations of holding more jobs over their lifetime. What changes might have occurred in the last quarter-century to change workers' expectations about long-term jobs?

Value of Long-Term Jobs to Workers