It’s perhaps natural to assume that when we change jobs we often upgrade to a better job at a more attractive, and usually more productive employer. Research from Chicago Booth reminds us that this isn’t always the case, however, and we can be just as likely to move to a job with a less productive firm.
The study suggests that while it is perfectly common for people to move from relatively low productivity companies to higher-productivity companies, there are a significant number of us that go the other way.
Moving the wrong way
“It’s true on average that these job changes are productivity enhancing, but it turns out it’s just barely on that side of the scale,” the researchers say. “This net productivity enhancement actually hides a lot of changes in both directions. Workers are going not just from less- to more-productive companies, but also quite often from more- to less-productive companies too.”
This matters as it’s often the progression from low to high-productivity firms that helps to grow the economy, due to the increase in productivity among workers that this transition invokes.
The findings emerged after an analysis of data from Chile gathered between 2005 and 2016. The data revealed that around 49% of job changes involved people going from high productivity companies to lower productivity companies.
Even split
While it is inevitable that some people will move to less productive firms, it is nonetheless surprising that the split is almost equal to those moving to more productive firms. This finding highlights the complexity of job-change decisions and that we often move for a variety of reasons, be that shorter commute times, better work-life balance, proximity to good schools, and so on.
“There are all these other reasons for changing jobs, which we knew existed, but we didn’t realize how big they were and how modest the enhancement was,” the researchers say.
There were also clear demographic differences between those moving on to more productive firms and those moving to less productive firms. For instance, most of those going to more productive firms were among people going directly from one job to another, with these moves often between high-performing companies.
What was much less common was for people to be made redundant from a high-performing firm and to then find new employment in a similarly high-performing firm. Those most likely groups to move to higher-productivity employers were the highly skilled, those with longer job tenures, younger workers, and female workers.
The researchers believe that their findings highlight some of the productivity mechanics of job reallocation, and illustrate the importance of reducing labor market friction if countries want to make even bigger productivity gains.
“It doesn’t take much net increase in productivity from worker reallocations to get aggregate productivity growth that’s pretty big, simply because so many people are changing jobs all the time,” the authors conclude. “If you get a small fraction of those to become productivity enhancing, you get a lot of extra productivity growth out of it.”
