Tight labor markets improve job quality, not just wages
A new Federal Reserve study finds that tight labor markets significantly improve job quality for workers changing jobs. A 10 percent increase in vacancies boosts the probability of switching to a better job by 11-18 percent, including better pay, benefits, and work interest.
Beyond pay: Amenities drive job satisfaction
Utilizing novel data from the Survey of Household Economics and Decisionmaking (SHED), the Federal Reserve study quantifies how tighter labor market conditions enhance self-reported workplace amenities.
A 10 percent increase in state-level vacancies per capita raises the likelihood of a prime-age adult changing jobs by 7 percent.
More importantly, it increases the probability of changing to a job considered better overall by 11 percent.
This improvement extends to specific amenities: a 12 percent increase in finding a more interesting job, an 11 percent increase in better work-life balance, and a 14 percent increase in advancement opportunities.
These findings suggest that traditional utility measures focusing solely on pay significantly underestimate the full benefits of tight labor markets for worker well-being.
Roughly three-fifths of these improvements are accounted for by a greater likelihood of changing jobs, with the remaining two-fifths from increased amenity improvement conditional on changing jobs.
This indicates that employers may improve non-pecuniary amenities to attract and retain workers during tight labor markets.
Phillips Curve: More than just wages
The paper adds crucial insights to understanding the labor market in the years following the COVID-19 pandemic, a period often characterized as the 'Great Resignation.'
While previous research documented wage gains, this study highlights the concurrent search for non-wage amenities like predictable schedules and job satisfaction.
The findings are robust across various methodologies and data sources, including the Job Openings and Labor Turnover Survey (JOLTS) and job postings from Lightcast.
A shift-share approach, isolating exogenous changes in labor demand, yields broadly similar results, with a 10 percent increase in labor market tightness leading to an 18 percent increase in the likelihood of changing to a better job overall.
This suggests that the benefits to workers of tight labor markets are likely higher than previously thought, as utility increases not only through real wage gains but also through improved job amenities.
Rethinking the Phillips Curve
This research offers a vital perspective for central bankers, urging a re-evaluation of labor market dynamics beyond simple wage metrics.
By quantifying the significant role of non-wage amenities, it reveals that worker well-being in tight markets is substantially higher than previously assumed.
Policymakers should integrate these broader job quality improvements to avoid underestimating the social returns of robust labor demand.