Youth Lack of Job Moves Cut Wages

Falling job moves among young people deepened their pay squeeze by a third

Think Tank warns a ‘new normal’ of low job mobility could have scarring effects for wages of future generations

Less frequent job moves among young people deepened their pay squeeze by a third during the downturn and could permanently reduce their earning potential if it becomes part of a ‘new normal’ in the labour market, according to the latest Earnings Outlook from independent think tank Resolution Foundation.

Job mobility – the frequency at which people move from one job to another – is a strong predictor of faster earnings growth. The Foundation’s analysis finds that this ‘switching premium’ – the relative pay boost from changing jobs compared to staying put – is particularly strong for young people.

Between 2007 and 2014, pay growth among 18-29 year olds who switched jobs was 2.7 times higher than those who stayed put (11.8 per cent vs 4.4 per cent in cash terms). Among older age groups the ‘switching premium’ was below 2.

However, despite this lucrative ‘switching premium’, the frequency with which people move jobs has been falling over the last decade, particularly among young people. The mobility rate for 18-29 year olds is currently over a third below its early-2000s peak, despite the impressive jobs growth of recent years.

The Foundation’s Earnings Outlook suggests that had job mobility not slowed in this way, young people’s hourly pay would be around 30p (or 3 per cent) higher than it is currently, reducing the scale of the pay squeeze by a third from 11 per cent to 8 per cent.

Instead, young people experienced a deeper pay squeeze than anyone else. Last year hourly pay for a typical 22-29-year-old had only recovered back to its 2000 level.

If young people and businesses fail to regain the confidence to take risks on one another and job switching remains low, there is a danger that one of the legacies of the recession will be lower earnings potential for generations to come.

Laura Gardiner, Senior Policy Analyst at the Resolution Foundation, said:

“Frequent job moves are the main route to the rapid pay increases young people should experience as they begin their working lives. So it is a real concern that job switching slowed down for all groups, and particularly for young people, even before the recession hit.

“Unpicking the reasons why young people are staying put in their jobs for longer is crucial to understanding whether job switching can return to its previous level, or whether we are seeing a ‘new normal’ of fewer job moves and subsequent slower pay growth for generations to come.

“Unless we want to see a long term scarring effect on the wages of future generations, Millennials must regain confidence and increase the frequency with which they move jobs, and firms must be more willing to take them on.”