It is all over the media: the “new economy” is changing the rules of the game, with potential major implications for workers and labour markets. Indeed, an editorial in The Economist from as long ago as 1993 (20 July) hit directly upon the theme with a catchy phrase: “Your company needs you, for the time being”.
In a more recent article on “The Future of Work” (29 January 2000), the same newspaper even claimed that “the old social contract between employers and workers is being shredded”. The implication is that many, if not most, workers will have to change their jobs and occupations many times throughout their working lives, and certainly change them more frequently than in the heyday of “lifetime employment”. The debate about job insecurity and company loyalty has become headline news again, but to what extent does the new economy make a difference? The arguments are widely touted, but what about the facts?
First, let’s see what the workers think. According to survey data in the 1997 OECD Employment Outlook, workers were concerned about their job security in the 1990s, as they were about the loss of fringe benefits, such as health insurance and pensions. These concerns are still widespread and not simply confined to countries with high and persistent unemployment. They are also noticeable in countries, such as the United States and the United Kingdom, where unemployment has fallen to historic lows in recent years.
But while there is no doubt that workers feel their jobs are less secure nowadays, what about actual job tenures – how long, on average, have workers spent with the same firm? In the following table, two facts stand out. First, it is only in Spain and the United States that one can clearly see a decline in average tenures. Second, average tenures have in fact increased in a number of countries, such as France, Germany, Japan and the Netherlands.
These averages could conceal as much as they reveal. An ageing workforce, typical in most OECD countries, would normally be expected to show higher average tenures compared with a more youthful workforce. And rising levels of education might be expected to lead to better job matches in early career, thereby reducing turnover rate and increasing average tenures. However, more sophisticated analysis, which takes such arguments into account (see references), does not alter the basic conclusion: at worst, average job tenure has remained rather stable in recent years; at best, it has increased in far more countries than it has declined. This suggests that the supposition about entering a new age in which the bonds between workers and their firms are breaking down rapidly may be out of kilter with reality.
How does one reconcile these facts with the anecdotal evidence in the press suggesting that job changes have become much more frequent, at least for certain groups of highly skilled workers, such as star engineers and high-level programmers – the “Silicon Valley” set? The answer is simple. One cannot generalise from such small instances of genuine increases in job mobility to conclude that there is a broad trend towards job instability among upper-level workers. In fact, OECD analysis shows that problems with job instability, along with higher perceptions of job insecurity, are much more pronounced among less-educated workers than among the highly-skilled. This dichotomy in perceptions and job stability between less-educated and highly-skilled workers is hardly a new phenomenon. Furthermore, while the new economy may have had some influence on the labour market, the effect is unlikely to have been that great, given the still relatively small scale of investments in information and communications technology.
While there may be no general trend towards increased labour and job turnover, it is true that large numbers of workers move in and out of jobs every year. Both the 1994 and the 1996 Employment Outlooks show that roughly 10% of all jobs are newly created each year and about 10% are destroyed. Many firms adjust employment levels even in good times: some firms go bust and new firms are started up. This turbulence generates both costs and benefits. From an employer’s perspective, high turnover can enhance flexibility of staffing levels in an uncertain world. However, it also directly increases such costs as, for instance, the (repetitive) recruitment procedures that high turnover makes inevitable. It can also lower productivity and product quality by, for example, undermining staff morale, especially among those workers who have mastered the specific skills and knowledge required to function efficiently in the firm. A labour market with a high degree of turnover may make it somewhat easier for workers who quit or are fired to find another job, though there will be uncertainty as to the quality of the new job and its likely duration.
This gives rise to a fundamental question: could an excessively high job turnover rate hinder the development of those skills and competencies that are needed for success as much in the new economy as in the old? As countries profess to be taking seriously the policy implications of life-long learning, this issue is timely. A number of countries have expressed concern about the need to compete effectively in the international market-place while protecting the living standards of the workforce. A focus of this debate has been on inadequacies in the efforts made by firms to invest in skill formation, training and work organisation. How to promote institutions that support rapid and good job matches and longer tenures, as well as other institutions – that can ensure adequate worker participation or “voice” in the firm – has been a key point of discussion.
Another way of asking the question about turnover and skills is this: can firms have it both ways, as some of them appear to desire, and retain a highly skilled and flexible workforce while insisting on the freedom to hire and fire as they wish? It seems unlikely. Worried about their next job switch, workers, not surprisingly, may not care much about the fortunes of their firm unless given an incentive to do so. Businesses fear losing valuably-trained workers to competitors and this can lead to less investment in skills than is socially desirable, or indeed economically necessary to compete. This, in turn, may lead to even higher labour turnover, further discouraging training.
Firms play a critical role in human capital investment. On average in OECD countries, employers support about three-quarters of continuing vocational training received by adult workers. Thus, workers are most likely systematically to update and enhance their job skills if their employer views training them as a sound business investment. This is more likely to occur if the worker is expected or encouraged by personnel practices to remain with the firm for an extended period of time. Stability of employment can enhance skill training; this is demonstrated by the tendency of firms in industries with above-average job tenures and lower labour turnover to offer more training. Moreover, firms are more likely to implement flexible forms of work organisation successfully if these initiatives are combined with intensive training and improved job security.
In sum, both firms and workers have to become more adaptable and flexible – the onus is on both partners in the employment marriage. Many workers would accept changes in pay practices and working conditions so long as they had a voice in these decisions. They already often accept the routine and not-so-routine pressures employers ask of them so that the firm can compete and grow. Employers, in turn, need to deal with specific problems that workers have, such as child-care and other family-related issues. In short, the rule goes for the new economy as much as it did for the old: to get on, firms need to win the hearts and (increasingly skilled) minds of their workers.
Burchell, J.B., Day, D., Hudson, M., Lapido, D., Mankelow, R., Nolan, J.P., Reed, H., Wichert, I.C. and Wilkenson, F., Job insecurity and work intensification: Flexibility and the changing boundaries of work, Joseph Rowntree Foundation and YPS Press, London, 1999
OECD, Employment Outlook, Paris, July 1993, 1994, 1996, 1997
OECD, Employment Outlook, Paris, June 1999.
Soskice, D., “Reinterpreting Corporatism and Explaining Unemployment: Co-ordinated and Non-co-ordinated Market Economies,” in Brunetta, R. and Dell’Aringa, C. (eds.), Labour Relations and Economic Performance, MacMillan Press, London, 1990.
©OECD Observer No 221/222, Summer 2000