The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. The Role of Job Turnover in the Low-Wage Labor Market . What Is Turnover?

02/17/2000

Turnover is the result of both quits and layoffs.  Thus, some turnover is a result of jobs in one firm being destroyed and jobs in another firm being created — and hence due to the reallocation of jobs across the economy in response to changes in product demand.  A majority of job changes, however, are because workers reshuffle across the same set of jobs, and this worker reallocation occurs over and above job reallocation.  There are enormous amounts of both job and worker reallocation in the U.S. — the annual job reallocation rate is about 20 percent; the quarterly worker reallocation rate exceeds 40 percent.(1)  In other words, almost one job in five is destroyed or created every year, while out of every 10 jobs, four will be occupied by new people within a quarter.

Although most jobs are short, most people are in long-term jobs.  The picture of enormous job change must be tempered by the realization that while most job spells end relatively quickly, most people are in long-lasting jobs.  Thus, although almost one in four new jobs ends within a quarter,(2) and roughly 20 percent of workers have been on the job for less than one year,(3) average tenure for men in 1991 was almost 8 years.(4)

Low-wage workers have shorter job tenure and a greater number of job spells than other workers.  The impact of this on well-being is clear — the difference between poor and non-poor low-wage workers is that poor workers are employed for roughly the same number of hours per weeks, but 20 percent fewer weeks per year.(5)  Thus, low wages, combined with frequent spells without a job, suffice to push workers below the poverty threshold.

The causes and consequences of turnover are complex.  Clearly, turnover can be seen as a joint employer/worker decision: If the change is initiated by the employer, it is called a layoff; if by the worker, it is called a quit.  Thus, understanding the causes requires understanding the decision-making process of both the employer and the employee.  Describing the consequences is equally tricky, since turnover initiated by the worker is often likely to result in her getting a better job while that initiated by the firm may have adverse consequences.

Less-educated workers are less likely to jump jobs and more likely to be pushed out.  One study in particular, has pointed out that this group of workers are more likely to have new jobs than the most educated (22.7 percent of high school dropouts were in jobs with less than one year's tenure in 1996 compared with 16.6 percent of college) and are also less likely to be offered health insurance when they change jobs (15.4 percent are offered coverage in new jobs, compared with 45.2 percent of college graduates), and this likelihood has declined dramatically in the past 15 years.(6)