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February 2005, Vol. 128, No.2

Job mobility and wage growth: evidence from the NLSY79

Audrey Light

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.

This excerpt is from an article published in the February 2005 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.

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1 Throughout this article, job mobility refers to a change of employer, and not to an intra-firm change in position, rank, or work assignment.

2 Examples of such models include Kenneth Burdett, "A Theory of Employee Job Search and Quit Rates," American Economic Review, Vol. 68, no. 1, 1978, pp. 212–220; and Boyan Jovanovic, "Job Matching and the Theory of Turnover," Journal of Political Economy, Vol. 87, No. 5, part 1, 1979, pp. 972–990.

3 For a model of firm-specific human capital, see Gary Becker, "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, Vol. 70, No. 1, pp. 9–49. Agency models include Edward Lazear, "Why is There Mandatory Retirement?" Journal of Political Economy, Vol. 87, No. 6, 1979, pp. 1261–84; and Joanne Salop and Steven Salop, "Self-Selection and Turnover in the Labor Market," Quarterly Journal of Economics, Vol. 90, No. 4, 1976, pp. 619–627.

Related BLS programs

National Longitudinal Survey

Related Monthly Labor Review articles

Job mobility and hourly wages: is there a relationship?May 2004.
Earnings mobility in the United States, 1967-91.
Sept. 1995.

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