How does job turnover affect U.S. workers’ wellbeing?

Climbing the income ladder by moving from job to job is incredibly important for workers’ success because job-hopping is the main source of wage and income growth for the broad workforce. But do people actually enjoy the experience of working in such a dynamic labor market? A new working paper from the National Bureau of Economic Research looks at how job turnover affects people’s self-reported wellbeing.

The research by Philippe Aghion of Harvard University, Ufuk Akcigit of the University of Pennsylvania, Angus Deaton of Princeton University, and Alexandra Roulet at Harvard, looks at how the destruction and creation of jobs (job churn, in economic parlance) affects how people report in the area their wellbeing. To measure wellbeing, the authors use survey data about people’s self-reported wellbeing. Specifically, they focus on questions about satisfaction in the present from the Behavioral Risk Factor Surveillance System, and in the future from the Gallup Healthways Wellbeing Index. The two data sets combined cover 2005 to 2011.

Theoretically, job churn could affect wellbeing in two different ways. Perhaps most intuitively, job destruction can be, well, destructive. When a worker loses a job or sees enough neighbors lose jobs then that’s a sign of risk and that will reduce reported wellbeing. But at the same time, job churn may also mean a higher rate of job creation. More job creation means more unemployed people are likely to get a job. Once employed, these individuals are more likely to enjoy the fruits of stronger economic growth, and consequently, higher wages, boosting a worker’s present overall wellbeing as well as expectations of future wellbeing.

Aghion, Akcigit, Deaton, and Roulet estimate the effects of job churn by looking at data from the 381 metropolitan statistical areas across the United States. The authors’ results broadly mesh with what you’d expect. If you control for the level of unemployment in particular metropolitan regions, the relationship between job churn and wellbeing is “unambiguously positive.” At any given rate of unemployment, more churn is associated with more wellbeing.

That being said, it is important to break the turnover down into job creation and job destruction to fully understand what is going on. Empirically, more job creation in a metropolitan statistical area is correlated with higher wellbeing and more job destruction is correlated with lower wellbeing. But the size of these effects can be very different depending upon other contexts within particular metropolitan regions.

Consider unemployment insurance. Some metro regions are in states where unemployment insurance is more generous than in other states. The authors look at how the effects of turnover might be different depending upon the level of unemployment insurance available within the state. They find that the positive effects of job creation on self-reported wellbeing aren’t affected by the size of an unemployment check. Yet they also find that the negative effects of job destruction are mitigated by the size of the weekly unemployment check. In fact, job destruction has a positive effect on wellbeing in those metropolitan statistical areas where better unemployment insurance compensation is available above the median.

So it appears that some of the downsides of job churn for workers’ wellbeing can be mitigated by policy action that makes job-hopping less daunting and thus ultimately more rewarding in terms of career advancement and income growth. In other words, dynamism and economic security don’t appear to be in tension.