from the Atlanta Fed

— this post authored by John Robertson

A recent article by Jason Faberman and Alejandro Justiniano at the Chicago Fed shows that there is a strong relationship between quit rates – as a proxy for the pace of job switching – and wage growth. Movements in the quit rate and wage growth are both procyclical. A tighter (weaker) labor market implies workers are more (less) likely to find better employment matches, and employers are more (less) willing to offer higher wages to attract new workers and retain existing workers.

To get some idea of the different wage outcomes of job switching versus job staying, we can use microdata underlying the Atlanta Fed’s Wage Growth Tracker from the Current Population Survey. The following chart plots the quarterly private-sector quit rate (orange line) from the Job Openings and Labor Turnover Survey using Davis, Faberman, and Haltiwanger (published in 2012 in the Journal of Monetary Economics) estimates before 2001. Also shown is the median year-over-year wage growth of private-sector wage and salary earners who switched jobs (blue line) or stayed in the same job (green line). Job stayers are approximated by the restriction that they are in the same broad industry and occupation as 12 months earlier and have been with the same employer for each of the last four months. Job switchers do not satisfy these restrictions but were employed in the current month and 12 months earlier.

The correlation between the quit rate and median wage growth is strongly positive and is slightly higher for job switchers (0.91) than for job stayers (0.88). In most periods, the median wage growth of job switchers is higher than for job stayers. This difference is consistent with the notion that job switching tends to involve moving to a better-paying job. However, during periods when the quit rate is slowing, median wage growth slows for both job stayers and switchers (reflecting the correlation between quits and wages), and the wage-growth premium from job switching tends to vanish.