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Declining job security

  • Robert G. Valletta

Although common belief and recent evidence point to a decline in "job security," the academic literature to date has been noticeably silent regarding the behavioral underpinnings of declining job security. In this paper, I define job security in the context of implicit contracts designed to overcome incentive problems in the employment relationship. Contracts of this nature imply the possibility of inefficient separations in response to adverse shocks, and they generate predictions concerning the relationship between job security parameters-such as worker seniority, aggregate shocks, and sectoral economic conditions-and the probability of separations. To test these predictions, I use Panel Study of Income Dynamics (PSID) data for the period 1976-92, combined with tabulations from the March Current Populations Surveys (CPS) for the same (and earlier) years. I use these data to estimate binomial and multinomial models of job separation decisions. The results are consistent with a decline over time in the incentives to maintain existing employment relationships.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Papers in Applied Economic Theory with number 98-02.

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Date of creation: 1998
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Handle: RePEc:fip:fedfap:98-02
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  1. Robert E. Hall & Edward P. Lazear, 1982. "The Excess Sensitivity of Layoffs and Quits to Demand," NBER Working Papers 0864, National Bureau of Economic Research, Inc.
  2. Idson, Todd L & Valletta, Robert G, 1996. "Seniority, Sectoral Decline, and Employee Retention: An Analysis of Layoff Unemployment Spells," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 654-76, October.
  3. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-82, June.
  4. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  5. Henry S. Farber, 1995. "Are Lifetime Jobs Disappearing? Job Duration in the United States: 1973-1993," NBER Working Papers 5014, National Bureau of Economic Research, Inc.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  7. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  8. Kenneth A. Swinnerton & Howard Wial, 1995. "Is job stability declining in the U.S. economy?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 48(2), pages 293-304, January.
  9. Bull, Clive, 1987. "The Existence of Self-Enforcing Implicit Contracts," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 147-59, February.
  10. Robert G. Valletta, 1996. "Has job security in the U.S. declined?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue feb16.
  11. Antel, John J, 1985. "Costly Employment Contract Renogotiation and the Labor Mobility of Young Men," American Economic Review, American Economic Association, vol. 75(5), pages 976-91, December.
  12. McLaughlin, Kenneth J, 1991. "A Theory of Quits and Layoffs with Efficient Turnover," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 1-29, February.
  13. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  14. Ramey, Garey & Watson, Joel, 1997. "Contractual Fragility, Job Destruction, and Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 873-911, August.
  15. Rob Valletta & Randy O'Toole, 1997. "Job security update," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov14.
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