Comments on economics, mystery fiction, drama, and art.

Friday, March 21, 2014

Job Quits and Wage Increases

A post today at FiveThirtyEight ("Want a Raise?  Quit Your Job") proposes, using anectdotal data, that one plausible way for workers to get pay increases is to quit their jobs.  I posted this comment there:

There's a question of causation here. Is wage growth stronger *because* people quit more often, or do people quit more often *when* and *because* wage growth is strong? Even the highlight example here (trucking) is suspect in that respect. Why does Covenant offer those retention benefits? Is it (as I suspect) *because* wage growth in trucking is fairly strong, so it makes sense to try to retain the drivers that have?

(Incidentally, there is older information on quit rates, it's just not showing up on-line. You can find it in print editions of old BLS publications like the Employment and Training Report of the President, which was discontinued some time in the 1980s. It was discontinued, as I recall, because the Reagan administration didn't want to do it.)
And got this response:

Yes, you're right about quits--I meant the JOLTS series specifically. Older data aren't directly comparable, though you can make some adjustments.
Re: causation, it doubtless runs both ways to some degree (people more likely to change jobs when good prospects are available). But even after controlling for occupation/industry, there's evidence is that changing jobs does lead to wage growth.
His argument would be more convincing if he actually, you know, presented the evidence.  And the evidence would be that more rapid wage increases lead changes in quit rates.  His response suggests that we need to disaggregate to the industry and occupation levels, and (frankly) I don't have the time or the energy to do that.  But just looking at aggregate quit rates and aggregate wage increases, and using data from the BLS web site, I get this:

(Click to enlarge.)

The rate of wage increases has been increasing since mid-2012, but the quit rate has barely budged.  Over the 2010 to 2014 period, the correlation between the rate at which wages are increasing and the quit rate is 0.35, which is statistically significant, but not large.  And given the likelihood that at least some of the relationship comes from the causal effect of faster wage increases on quits, the ability of rising quit rates to explain  faster wage increases seems to me to be likely to be really small.  Unless, that is, I see some evidence to the contrary, rather than assertions of a relationship.


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