On Job Mobility and Earnings Growth

Abstract

This study examines the relationship between job mobility (mobility between employers), and wage growth. This relationship is examined in the short term (year–to-year) as well as in the medium-long term (after five years). Findings are presented for three sub-periods of equal length within the overall period, referring to a decade and a half between 1990 and 2005, with the aim of learning about the persistence and stability of this relationship throughout demographically, economically and socially distinct periods. The data used in this study come from the administrative data of the Tax Authorities, combined with additional demographic and economic data from other sources. According to the data, job stability noticeably diminished between the first and second half of the 1990s, and remained at a similar level afterwards. In the short term, the results show that job mobility—even when voluntary—has a negative effect on wage growth in each of the three studied periods, regardless of market and social conditions in these periods. Nevertheless, from a cumulative perspective over a period of five years, involuntary job mobility appears to have a negative effect on wage levels in the long term as well, while the findings regarding voluntary mobility are inconclusive but may be positive. The long-term moderate increase in wages related to job mobility may be explained by the hypothesis that in the current labor market, employees regard transitions between employers as a form of investment that carries certain risks but may be fruitful in the long term, despite its short-term costs—similar to what the human capital theory suggests regarding the acquisition of education or any other professional training. The findings also show that the effect of job mobility on wage growth in the long term is not resistant to periodical conditions and changes between the different periods. Considering the transition costs of job mobility, which are not taken into account in this study, job stability seems to be related, for the most part, to better wage growth.