Why fewer workers are moving for better jobs
Does income growth increase faster for workers who are loyal to their employers and work their way up within an organization, or for workers who are willing to move to a job with a new employer?
Economic research tells us that workers who are willing to change employers tend to experience higher wage growth. But if this is true, why has labor mobility been declining since the 1980s? You would think workers would be moving to take advantage of higher wage offers. Maybe the cost of changing employers has increased, or maybe it's become less lucrative. Or perhaps it's due to the aging of the population coupled with the fact that older workers tend to move less.
Researchers at the Federal Reserve in Washington, D.C., looked at this question in 2014 and concluded that worker mobility is falling because of a decline in the benefits of changing jobs. In particular, the attractiveness of offers to workers making a transition has fallen, while the costs -- which include factors such as more dual-earning households and the need to retain employer-sponsored health care coverage -- appear to have remained relatively constant.
The researchers are unable to determine the precise reasons for this, but the decline in the benefit of moving does explain why labor force mobility has declined.
More recent research from the Federal Reserve Bank of St. Louis notes that when looking at this issue, it's important to distinguish between workers who are moving directly from one job to another and those who become unemployed for some period of time before moving to a new job.
Workers who made a direct job-to-job change to a new geographic area had slightly lower wages than workers who changed jobs but remained in the same geographic area. But for workers who moved from unemployment to a new job, making a geographic change resulted in wages that were significantly higher than they received in their last job.
Once again, the research doesn't identify the precise reasons for this, but it brings up an important consideration for labor market policy. Although the 2014 Federal Reserve research found that the costs of moving to a new job have remained relatively constant over time, the costs differ for those who move directly from job-to-job and those who transition through unemployment.
Workers who have used up their savings and other resources due to being unemployed will find it much harder to move than workers who have a job. That's particularly true for long-distance geographic changes, but it's also true for shorter-distance changes that may require either moving to a new location within a city or experiencing a daily grueling commute.
Labor market policies could help by providing assistance for unemployed workers who want to move to new areas where jobs are more plentiful. Even at the depths of the Great Recession some regions lacked enough workers, but those who needed jobs found relocating too difficult.
We have a collective interest in having the best possible matches between workers and jobs, and the ability to easily move geographically is an important factor in the quality of job matches. We want, for example, engineers to be able to do what they're best at -- engineering -- rather than being forced to work at a fast-food counter or some other poor job match due to limited geographic mobility.
