What drives earnings growth for U.S. workers? In some form or another, this was the question addressed by researchers at a session of the American Economic Association’s annual meeting that I attended earlier this month in Chicago.
There are three important channels for an employed worker to increase earnings. He or she can get a raise, work more hours, or take a higher-paying job. (Another channel of earnings growth is for unemployed workers to find jobs.) The papers presented in the session interestingly used different types of U.S. data to study the relative importance of each channel. Of special interest was the third channel: moves directly from one job to another, which economists call employment-to-employment (EE) transitions or job-to-job flows. In particular, two of the papers looked at a question that is notoriously difficult to study: the effect of the rate of job transitions on the wages of those who stay at the same job.
In “The Relative Power of Employment-to-Employment Reallocation and Unemployment Exits in Predicting Wage Growth,” a paper co-authored with Fabian Postel-Vinay of University College London, Giuseppe Moscarini of Yale University showed that wages are strongly correlated with employment-to-employment (EE) transitions, even for workers who do not change jobs. This indicates that EE transitions are an important measure of the health of the labor market, separate from overall unemployment and unemployment-to-employment transition rates.
In “Job-to-Job Flows and Earnings Growth,” four economists from the U.S. Census Bureau used matched employer-employee data to make a similar point. They showed that “job-to-job flows have a strong role to play in increases in hours worked,” which sheds light on the mechanism from the other papers. Job stayers may benefit from a robust labor market in part not from renegotiating higher wage rates, but from the opportunity to work more. This especially makes sense for long-tenured workers, who may not be shopping for outside offers as leverage to earn raises. What made this presentation especially interesting was its use of a forthcoming Census data series on job-to-job transitions, which in the future may provide economists with another tool to measure local and national business conditions.