Talent Management Column

The Decline of 'Dynamism'?

Talent acquisition and rising quit rates are all the talk in HR circles these days. But in today's labor market, there's evidence that job hopping is actually declining and people are staying in their jobs longer. What's really going on?

Wednesday, November 30, 2016
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For people close to HR, the noise and attention given to talent acquisition -- and by that, we mean finding and hiring candidates -- has been at a fever pitch. It seems to be all that vendors talk about, in part because of the perception that this is all employers care about.

But the data from economists about the labor market as a whole seems to tell a different story, as report after report suggests that people just aren't moving from job to job anymore. What's going on?

The answer isn't so straightforward.

The first thing we might want to do is recognize that attention and noise from vendors is probably not the place to start in trying to figure out what is going on in the economy. So let's start with real data on the economy.

A number of news stories based on research papers argue that the "dynamism" in the labor market is actually declining. Some of these stories begin with reports that entrepreneurship is declining, but the evidence on this is not so clear. Yes, business start-ups fell sharply during the Great Recession, and they weren't looking great through 2012. But while they are not yet back to 2006 levels, it has risen since then, as measured by the number of companies that are less than one year old. So there's no reason to think this is a permanent decline.

Most of the arguments center on declines in dynamism in the labor market, but what does that mean?  One part of this involves a development that concerns macroeconomists: Fewer people are moving across different "states" of the labor market. For example, fewer individuals are moving from jobs to unemployment while fewer individuals are moving from unemployment to jobs now, as compared to previous decades. That's a bit surprising, given that one in five workers lost their jobs during the Great Recession, but we need to keep in mind that the trend is looking at a period of roughly 20 years. Also, fewer individuals are moving out of the labor force (either retired or without a job and not looking) and fewer are moving from out of the labor force back into it. It is fair to say that these measures bounce around dramatically year by year, so the trends are obvious just by looking at the data.

One trend affecting HR finds people are not moving geographically as much as they did approximately 20 years ago. Some of this may be related to the fact that companies don't seem to support moves from one location, but employees appear less inclined to relocate as well.

The part of dynamism that most concerns HR and gets us to a conundrum is the number of people who are moving from one job to another. That's declining, and it has been doing so for a while (rather sharply since 2000.) Movement from job to job requires employees to voluntarily quit and, for the most part, move directly to new jobs.

So here's the contradiction: Lots of energy and money are going into talent acquisition -- and HR continues to worry about rising quit rates and retention. But in the labor market, the evidence shows that job hopping is actually declining and that people are staying in their jobs longer. What's going on?

Here's my best guess: The overall trend of less job hopping masks a lot of variance within individual groups and industries. For example, tenure for men had been falling for decades, partly because of layoffs, but also because of job hopping, while it had been rising for women, largely because women were no longer quitting (or perhaps pressured to quit) when they had children. Jobs may also be more stable now in parts of the economy that HR people aren't paying much attention to, such as part-time work or in small companies.

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When we listen closely, the buzz and attention directed at talent acquisition is highly focused on a few industries, especially technology and healthcare, and a few occupations, such as IT. It's also focused on big companies that can afford to invest in fancy hiring practices.  

This leaves the bigger question: Why is job hopping, on the whole, down?  No one knows for sure, but there is some evidence that it just doesn't pay as well as in the past to move to a new employer. Once again, that depends on where you are. In the management world, the figure one often hears is that individuals moving to an equivalent job in another company will get a 20-percent raise, but in the labor force as a whole, it has been much lower, closer to 7 percent. Maybe that's not enough to get people to move, but putting it the other way around, maybe employers aren't finding it's worth it enough to hire someone from outside.

This conundrum over dynamism and talent mobility is indeed a confusing one.

Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School of the University of Pennsylvania in Philadelphia. His latest book is "Will College Pay Off? A Guide to the Most Important Financial Decision You'll Ever Make."


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