Employer-to-Employer Flows in the U.S. Labor Market: The Complete Picture of Gross Worker Flows

TLDR

Employer‑to‑employer flows are crucial for understanding labor market and business cycle dynamics, yet no comprehensive, representative measure of their size and character has existed. The study aims to construct the first reliable measures of employer‑to‑employer flows in the United States. It does so by exploiting the dependent interviewing techniques introduced in the Current Population Survey in 1994. EE flows are large—about 2.6 % of employed persons change employers each month, more than twice the employment‑to‑unemployment rate—and account for nearly 40 % of new jobs between 1994 and 2003; they are markedly procyclical, peaking during recessions and falling sharply when the labor market loosens, a pattern the authors suggest should inform future models.

Abstract

Despite the importance of employer-to-employer (EE) flows to our understanding of labor market and business cycle dynamics, the literature has lacked a comprehensive and representative measure of the size and character of these flows. To construct the first reliable measures of EE flows for the United States, this paper exploits the dependent interviewing techniques introduced in the Current Population Survey in 1994. The paper concludes that EE flows are large: On average 2.6 percent of employed persons change employers each month, a flow more than twice as large as that from employment to unemployment. Indeed, on-the-job search appears to be an important element in hiring, as nearly two-fifths of new jobs started between 1994 and 2003 represented employer changes. EE flows are also markedly procyclical, although the cyclicality is concentrated around the recession: EE flows did not increase as the labor market tightened between 1994 and 2000, but they did drop sharply as the labor market loosened during the period 2001 through 2003. We view the uneven cyclical pattern of EE flows as a pattern to be incorporated into future models.