Your Employees Are More Loyal Than You Think

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- Posted
March 17, 2020

The narrative is familiar by now: job-hopping is increasingly common in the United States, while long-term employment relationships are hard to establish. But new research shows that the story is much more complicated; in fact, looking at the overall economy, business leaders of a generation ago would have envied the low job switching rates that U.S. companies enjoy today. So to increase employee loyalty, savvy hiring managers need to move past common myths about job tenure and focus on the story the data is actually telling. Only then can they design truly successful retention strategies.

In general, workers are job-hopping less often today than they were 30-plus years ago. A recent NBER working paper by Raven Molloy, Christopher Smith, and Abigail K. Wozniak shows that the share of workers with less than one year of tenure fell from 18-20% in the 1980s and 1990s to about 16% in recent years. At the same time, the share of workers with more than 20 years of tenure has increased from 8-9% in the 1980s and 1990s to about 10% in recent years.

Given these stats, why is the perception of increased job-hopping so widespread? The first reason is one highly visible cohort —male employees — do in fact stay with their employer for shorter periods of time. For instance, 32% of male professionals aged 40-64 had 20 years of tenure or more in the 1980s. That share has fallen to 21%  according to the study by Molloy et al. The drop was in part driven by a decline of U.S. manufacturing employment and by lower rates of unionization, but the overall trend is the same across the entire private sector as well.

The second key reason for why employees are perceived as switching jobs more frequently is the generational narrative, branding millennials as the job hopping generation. A number of recent studies and surveys refute this view, but perception can take a long time to change.

The third reason for why firms feel that employee retention is harder is the strong U.S. labor market. Voluntary resignations might be low compared to the 1980s and 90s, but they are currently at a 15-year high — most likely because employers are more willing to offer extraordinary opportunities to job switchers as a result of the low unemployment rates. This view is boosted by extensive job hopping in high-prestige and high-visibility sectors such as Silicon Valley tech firms, management consulting, and finance, where the war for talent is accelerating.

So, while job-hopping may not be as common as many people think, the trends suggest employers should prepare for a future where job-hopping does become the new normal, at least for a while.

So how should business leaders prepare? First, they should take a fresh look at their recruiting models to ensure that they are attractive to female employees, as women have become significantly more likely to stick with their employer in recent decades. According to the NBER study referenced earlier, the share of females in managerial, technical, or other professional positions aged 40-64 who have been with the same employer for 20 years or more has increased by nearly 5 percentage points since the 1980s. During the same period, the same share for men fell by 10 percentage points. In the past, women tended to have significantly lower tenure relative to men in most industries. This is no longer the case. Combined with the aging of the workforce (which tends to push up tenure), the increasing propensity of women to stick with their employer is the key factor driving the increase in overall tenure on the labor market.

Unfortunately, companies can get stuck in old recruiting patterns that don’t reflect this trend. One office chair manufacturer we worked with, for example, told us they struggled to find loyal factory workers. Upon reviewing their data, we were able to show that their most productive and loyal workers were women — but only a fraction of their workforce was female. When asking why this was the case, the factory floor manager admitted that their recruiting model had traditionally favored male applicants, as there was an assumption that there might be some heavy lifting involved in the job — even if he could not come up with any examples of any heavy lifting occurring in any of their roles.

A second trend employers can capitalize on is that Americans are moving at historically low rates. In 2019, for the first time since tracking of mobility started some 70 years ago, fewer than 10% of the population moved. Of those who do move, fewer are moving between states. Even moves between two counties within states are less common than a generation or two ago. This trend is coupled with the fact that job seekers, including millennials, want to be loyal to a single firm.  Employers who are willing to listen to their employees and offer them what they are looking for have a real opportunity to improve their retention rates.

Third, employers can review their compensation bands. Don’t simply pay according to traditional norms in the industry. Compensation matters — it’s not a coincidence that retail, food services, and entertainment, the three industries with the lowest average pay, are among the bottom five industries for retention. Instead, pay how much the position is worth to you, making sure to adapt your pay and benefits to local labor market conditions. Local factors matter more, as Americans become less prone to move long distances for a new job.

Finally, don’t buy into the narrative of the inevitable rise of the job-hopping millennial and don’t give up on fixing your retention challenges after a few small setbacks. For instance, we saw one baked-goods factory decline a large long-term contract because they were fearful that they couldn’t reverse their declining retention rates. High retention rates are still very much possible with proper attention to your target demographic and local conditions. Remind yourself that 95% of all Fortune 500 companies have operated during times with lower overall retention rates, so you can probably do it too!