Economic Letter: Does increased job switching signal higher wage growth?

An Economic Letter by David Staunton and Reamonn Lydon examines the job switching rate as a leading indicator of wage growth. When a worker leaves their current position with one employer to start a new job with a different employer – with either no spell, or a very short spell, of non-working in between – this is defined as a job switch. The job switching rate is defined as the total number of switchers divided by total employment.

The key findings are:

• When job switching is high, wage rises tend to follow for two reasons. First, because one of the main motivations for changing jobs is higher pay and second, employers might need to raise the wages of non-switchers to retain workers.
• The higher job switching rates observed in 2018 are concentrated to workers with higher education. This suggests that any associated wage gains may benefit these workers first. The accommodation and food services sectors currently show the highest rates of job switching. In contrast, public administration and health services have lower rates of job switching.
• Job switching rates in Ireland are close to, and by some measures above, levels last seen in the early-2000s, which suggests that wage growth could strengthen in the near-term. This could also signal over-heating pressures in the economy. The extent to which increased inward migration can contribute to aggregate labour supply will be important for job switching patterns in the future.

The views presented in Economic Letters are those of the authors and do not necessarily represent the official views of the Central Bank of Ireland.

Library of Economic Letters