PENSION POLICY: THE CONNECTION TO JOB STABILITY AND JOB SECURITY
CRS Report for Congress
Pension Policy: The Connection to Job Stability
and Job Security
Updated September 13, 2000
Specialist in Labor Economics
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress
Pension Policy: The Connection to Job Stability and
The view of pensions as a delayed benefit to which job leavers have a right has
combined with concern over the adequacy of workers’ retirement income to motivate
federal pension policy. Mobile workers may sacrifice pension benefits if they leave
a job before meeting a plan’s length-of-service requirement, because of inflation-
induced erosion of accrued funds in a defined-benefit plan (DB) between the time of
departure from a firm and eligibility for retirement, if they do not preserve the value
of vested accumulations from a defined-contribution (DC) plan because portability of
benefits is not widespread or because they often use the funds immediately, or if they
are employed by firms that do not provide pension benefits.
These possibilities have led Congress to pass some measures and consider others
meant to spur more firms to provide pensions, thereby increasing the chance that job-
changers will move from one pension-covered company to another. In addition,
policymakers have imposed and strengthened vesting schedules so that fewer
employees completely lose their right to accrued benefits when they change
employers. A small majority of adult workers do not stay at firms long enough to
reach the typical 5-year vesting period, however. Congress also has tried to adapt the
pension system to the nation’s mobile workforce by preserving the accumulated
balances of job-changers through portability of benefits. But, relatively few
participants in DB plans are covered by portability provisions. Moreover, only a
slight majority of participants in DC plans are permitted to rollover or transfer
accrued funds when they leave their current firms. And, a majority of benefit
distributions to job-changers are cashed out for use as current income rather than
preserved as pension savings for use upon retirement.
Interest in the nexus between pension policy and worker mobility has intensified
in recent years due, in part, to firms’ ongoing efforts to restructure their internal
operations to become more competitive. Corporate restructuring has sometimes
involved downsizing, in which the total workforce size has been reduced. It also has
sometimes meant assigning functions once performed internally to contingent workers
with whom firms typically do not develop long-lasting (i.e., secure) relationships. The
continuing use of corporate layoffs and of contingent workers has created the image
of a more turbulent labor market which, in turn, has prompted interest in adjusting
pension policy to better match the needs of a seemingly more mobile labor force.
Based on analysis of job tenure, worker displacement and contingent
employment data as well as a review of the economic literature, it appears that neither
job stability nor job security has thus far undergone a substantial, long-term decline.
Hence, one argument in favor of pension reform — that workers today are more often
moving from job to job — is not supported by the available empirical evidence.
Policymakers may think that job-changers are at risk of accumulating insufficient
funds for use in retirement even at current levels of labor mobility, however, and that
this circumstance justifies considering further modification of private pension laws.
Pension Policy and Job Changers....................................1
Coverage, Vesting, and Portability...............................2
More Labor Mobility?........................................4
Involuntary Job Loss........................................11
Contingent Work Arrangements................................16
List of Tables
Table 1. Tenure Distribution of Employed Wage and Salary Workers Age 16
or Older by Gender, 1983 and 2000..............................7
Table 2. Tenure Distribution of Employed Male Wage and Salary Workers
by Selected Age Groups, 1983 and 2000..........................8
Table 3. Displacement Rates for Workers Age 20 or Older by Job Tenure,
1981-1998 ................................................ 11
Table 4. Selected Data on Contingent Workers, 1995, 1997, and 1999......16
Pension Policy: The Connection to Job Stability
and Job Security
In the late 1800s, companies viewed pensions as a way to charitably remove
from their payrolls older employees whose productivity had diminished.1 In addition,
some firms (e.g., those with sizeable hiring and training costs) wanted to discourage2
employee turnover and develop stable workforces. They established and structured
pensions toward that end, namely, as a reward for long-time continuous service. For
these reasons, pensions often were not offered to employees who left firms before
With the passage of time, perceptions about pensions changed. They now are
generally regarded as deferred compensation to which job-leavers or short-tenured
workers are entitled.3
Pension Policy and Job Changers
The view of pensions as a delayed benefit to which job-leavers have a right has
combined with a general concern over the adequacy of workers’ retirement income
to motivate federal pension policy. Workers — such as women who historically have
had more sporadic employment patterns than men, or employees in industries with
high job turnover — may sacrifice pension benefits when they change jobs. Mobile
workers may forfeit retirement income in a variety of ways, including:
!the failure to meet a pension plan’s length-of-service (i.e., vesting) requirement
!inflation-induced erosion of accrued funds in a defined-benefit (DB) plan
between the time a worker leaves one firm and retires from another,
!the inability to rollover or transfer benefits from a defined-contribution (DC)
plan into an individual retirement account (IRA) or a subsequent employer’s
!cashing out as current income rather than preserving as savings for use in
retirement accrued benefits from a DC plan upon changing jobs, or
1 Turner, John A., Tabitha A. Doescher, and Phyllis A. Fernandez. Pension Policy for a
Mobile Labor Force. Kalamazoo, Michigan, W.E. Upjohn Institute for Employment
Research, 1993. (Hereafter cited as Turner, Doescher and Fernandez, Pension Policy for a
Mobile Labor Force.)
2Gustman, Alan L., Olivia S. Mitchell, and Thomas L. Steinmeier. The Role of Pensions in
the Labor Market: A Survey of the Literature. Industrial Relations Research Review, v. 47,
no. 3, April 1994.
3Turner, Doescher and Fernandez, Pension Policy for a Mobile Labor Force.
!taking a new job with a business that does not offer pension benefits.
Coverage, Vesting, and Portability
Defined-Benefit and Defined-Contribution Pension Plans
“A defined-benefit plan legally obligates employers to pay retirees an annuity (based on a
formula specified in the plan) at retirement age. The size of the benefit is typically based
on salary and years of service. The employer is responsible for making contributions to
the pension fund, investing the fund’s assets, and paying benefits. With this type of plan,
the employer has considerable latitude in deciding how to invest plan assets; but the
employer also bears the entire risk, if investments perform poorly. If plan investments
perform extraordinarily well, however, the employer may be able to reduce or suspend
contributions to the plan for some period of time.
Defined-contribution plans typically specify the level of employer contributions to the plan
but not the actual benefits that will be paid upon retirement. Defined-contribution plans
may contain a provision for employees to contribute to their accounts, often on a pre-tax
basis. Funds available at retirement depend on how much the employee and employer
contribute to these accounts, as well as investment earnings. In contrast to defined-benefit
plans, employees in defined-contribution plans bear the entire risk and reward of their
investment decisions. There are several types of defined-contribution plans” including
savings and thrift plans, deferred profit-sharing plans, money purchase pension plans, and
“Some defined-contribution plans allow workers to contribute part of their earnings to an
individual account and to defer income taxes on these contributions until the money is
withdrawn, usually at retirement. These plans sometimes are called 401(k), 403(b), or
Section 457 plans, after the sections of the Internal Revenue Code that permit them to be
established.” Most of these salary-reduction/tax-deferred plans “are savings and thrift
plans, although salary-reduction features are sometimes included in” the other types of DC
plans and in “free-standing 401(k) plans (to which employers do not make any
Source: U.S. Department of Labor. Report of the American Workforce, Chapter 3, Employer
Provided Retirement Plans. Washington 1997.
These possibilities have led Congress to pass some measures and consider others
that are intended to encourage more firms to provide pension plans, thereby
increasing the likelihood that job-changers will move from one pension-covered
company to another.4 Policymakers also have modified the nation’s private pension
system so that fewer employees will completely lose their right to pension benefits if
4Congress has, for example, enacted several laws aimed at encouraging small businesses to
offer DC plans. Legislation has been introduced in the 106th Congress that is intended to spur
small employers to offer DB plans. See the following for more information on pension policy
and small business: CRS Report 96-243, Simplified Employee Pensions: A Fact Sheet and
CRS Report 96-758, Pension Reform: SIMPLE Plans for Small Employers, both by James
R. Storey; and CRS Report RL30122, Pension Coverage: Recent Trends and Current
Policy Issues, by Patrick J. Purcell.
they change employers. Congress first imposed vesting schedules, which have been
strengthened over time, in the Employee Retirement Income Security Act of 1974
(ERISA). Today, single-employer DB plans usually provide 100% vesting of accrued
benefits to employees who have completed 5 years of service, with no entitlement to
employer contributions before then. This type of vesting, called cliff vesting, also is
commonly found in multi-employer DB plans, to which several firms contribute under
collective bargaining arrangements. Full vesting of benefits in multi-employer DB
plans typically occurred after 10 years of service but, under law, will now be treated
like other DB plans with regard to vesting schedules when labor contracts are
renegotiated. Although ERISA applies the same vesting requirements to employer
contributions to DB and DC plans, participants in DC plans more often receive5
immediate full vesting or graduated vesting of benefits. Of the relatively fewer
participants in DC plans with cliff vesting, most are fully vested after 5 years. In
2000, however, 54% of workers age 20 or older had not yet been at their firms for the
typical 5-year vesting period (52% of adult men; 56% of adult women).6
Congress also has taken steps to adapt the private pension system to the nation’s
mobile labor force by preserving the pension balances of workers who change jobs.
Portability currently exists in two forms: service credit portability allows employees’
cumulative work time at previous firms to count in determining benefits upon
retirement from their last employer, and asset portability allows employees to deposit
accrued pension funds into IRAs or to switch accrued sums into pension plans offered
by subsequent employers. Relatively few participants in the dwindling number of DB78
plans are covered by portability provisions; however, the recent move toward cash-
balance plans is changing the portability situation for workers in DB plans.9 Most DB
participants covered by portability provisions are in multi-employer plans negotiated
by labor and management. As the unionized share of the labor force has declined, so
too has the share of pension participants in multi-employer plans. In addition, a very
5With graduated vesting, the employee’s right to the DC plan’s employer contributions
increases incrementally and usually reaches 100% after 5 years although up to 7 years are
allowed under law. Employee contributions to either DB or DC plans are immediately vested.
U.S. Bureau of Labor Statistics (BLS). Employee Benefits in Medium and Large Private
Establishments. Various years. (Hereafter cited as BLS, Employee Benefits in Medium and
Large Private Establishments.)
6BLS. Employee Tenure in 2000. USDL 00-245, August 29, 2000. (Hereafter cited as
BLS, Employee Tenure in 2000.)
7The number of DB plans insured by the Pension Benefit Guaranty Corporation declined from
a high of some 112,000 plans around 1980 to some 50,000 plans in the late 1990s. Strauss,
David M. Pension Issues as Viewed by the Pension Benefit Guaranty Corporation in:
Salisbury, Dallas (ed.). Do Employers/Employees Still Need Employee Benefits?
Washington, Employee Benefit Research Institute, 1998.
8During much of the 1990s, less than 10% of full-time employees in medium and large private
firms with DB plans were covered by portability provisions. The BLS first published
information on this plan provision in its 1991 publication. BLS, Employee Benefits in
Medium and Large Private Establishments.
9For more information on cash-balance plans see: CRS Report RL30196, Pension Issues:
Cash-Balance Plans, by Patrick Purcell.
slight majority of participants in DC plans are permitted by their employers to rollover
or transfer accumulated benefits when they change jobs.10 And, according to an
analysis conducted by the Employee Benefit Research Institute of Hewitt Associates’
data, 60% of distributions to workers who changed jobs in 1996 were cashed out as
current income rather than preserved as savings for use upon retirement. Although
the rollover rate has increased since 1993 and large dollar distributions are rolled over
more often than small distributions, the frequency of job change over a worker’s
career could argue for the importance of preserving relatively small vested pension
More Labor Mobility?
Interest in the nexus between pension policy and worker mobility has intensified
in recent years due, in part, to the impact of economic change on the labor market.
A legacy of the 1980s is the impression of firms restructuring their internal operations
in order to become more competitive in a faster paced, global marketplace.
Corporate restructuring has sometimes involved downsizing, in which hundreds of
thousands of employees have been laid off annually and total workforce size has been12
reduced. It also has sometimes meant assigning functions once performed by
traditional workers (i.e., persons hired with the understanding that their attachment
to the firm is not time-limited, barring poor individual or company performance) to
contingent workers (e.g., temporary workers or independent contractors).
Companies that use contingent workers typically do not develop long-lasting
relationships with them and do not offer them pension or other benefits.13
Consequently, contingent employment arrangements are viewed by some observers
as less secure and desirable than traditional jobs. Because of the arguably increased
churning of workers through firms, some members of the business and labor
communities want to work along with policymakers “to reduce the costs of worker
dislocation and mobility by encouraging the portability of health care and pension
10Generally, in the 1990s, less than 55% of full-time employees at medium and large private
firms with savings/thrift DC plans were allowed to transfer or rollover benefits. The BLS first
published information on this plan provision in its 1993 publication. BLS, Employee Benefits
in Medium and Large Private Establishments.
11Yakoboski, Paul. Large Plan Lump-Sums: Rollovers and Cashouts. EBRI Issue Brief,
Number 188, August 1997.
12For more information see: CRS Report 96-175, Corporate Downsizing: Labor Market
Aspects, by Linda Levine. (Hereafter cited as Levine, Corporate Downsizing.)
13For more information see: CRS Report RL30072, Temporary Workers as Members of the
Contingent Labor Force, by Linda Levine. (Hereafter cited as Levine, Temporary Workers
as Members of the Contingent Labor Force.), and U.S. General Accounting Office.
Contingent Workers: Incomes and Benefits Lag Behind Those of Rest of Workforce.
HEHS-00-76, June 2000.
14Collective Bargaining Forum. Principles for New Employment Relationships. April 22,
The nation has enjoyed over 9 years of economic growth, with an unemployment
rate that is at its lowest level in 3 decades. Nonetheless, the continuing use of
corporate layoffs and of contingent employment arrangements has perpetuated the
notion that firms have become less interested in maintaining a stable workforce and,
in turn, that worker loyalty to a given employer has diminished. This situation has
heightened interest in further adjusting pension policy to better match the needs of a
seemingly more mobile labor force.15 The remainder of this report will examine, from
a variety of perspectives, whether labor mobility actually has increased in recent years.
If employees have been holding many more jobs over their work lives, then the
length of time spent with the same employer (i.e., job tenure) should have diminished.
Overall, the data do not appear to support this conclusion. During the 1980s and16
1990s, the median job tenure of wage and salary workers age 16 or older has
fluctuated between 3.4 years (in 1987) and 3.8 years (in 1996). Most recently, in17
This stability is partly related to the aging of the baby-boom generation (i.e.,
persons born between 1946 and 1964) whose oldest members started turning 40 in
the mid-1980s. Job-hopping is more common during individuals’ initial years in the
labor force while they search for better job matches which then have a greater chance
of lasting. Voluntary (i.e., employee-initiated) job changes typically become less
common once workers accumulate experience and settle on a career path.18
According to data from the National Longitudinal Survey of Youth, the average
person has 9.2 different jobs between the ages of 18 and 34, with more than half of19
the separations occurring before the workers are 25 years old.
In contrast to the near constancy of median tenure across all wage and salary
workers, trends by gender diverge. The different directions of men’s and women’s
median job tenure hint at economic changes (e.g., cutbacks in manufacturing
industries and thinning of management ranks) that seemingly have had a more adverse
effect on men in general and on middle-aged to older men in particular. Between
15For information on pension proposals currently under consideration see: CRS Issue Brief
Congress, by James R. Storey.
16Median tenure means that half of employees held their jobs for a shorter period and half for
a longer period.
17Consistent data are not available before 1983 because of changes to the Current Population
Survey’s tenure questions. BLS, Employee Tenure in 2000.
18Topel, Robert H., and Michael R. Ward. Job Mobility and the Careers of Young Men. The
Quarterly Journal of Economics, v. 107, no. 2, May 1992.
19BLS. Number of Jobs, Labor Market Activity, and Earnings Growth Over Two Decades:
Results from a Longitudinal Survey. USDL 00-119, April 25, 2000.
to 3.8 years) despite the aging of the labor force.20 The decline has been much steeper
for 55-64 year old males, who reported a 5.1-year drop in median tenure (from 15.3
years to 10.2 years), and for 45-54 year old males, who reported a 3.3-year drop
(from 12.8 years to 9.5 years). In contrast, median job tenure modestly increased
among women, from 3.1 years in 1983 to 3.3 years in 2000. The increase reflects the
aging of many baby-boom women beyond the usual child-bearing years and the
greater attachment of women over time to the paid labor force. In particular among
women, those between 45 and 54 years of age experienced the largest gain in job
stability: their median job tenure lengthened from 6.3 years to 7.3 years during the
Looked at another way, if individuals have been changing jobs much more often
than in the past, the fraction of short-tenured workers should have increased and the
fraction of long-tenured workers should have decreased. As shown in Table 1,
however, just the opposite occurred among workers with less than 3 years and with
10 or more years of tenure. Thus, “permanent” or “lifetime” employment
relationships continue to characterize the U.S. labor market for about one-fourth of
employed wage and salary workers. But, the composition of long-time jobholders
has shifted. Men represented 64% of all employees who were at their firms for at
least 10 years in 1983. By 2000, men’s presence among long-tenured workers had21
fallen to 55%.
Although the magnitude has not been large enough to affect overall job stability,
men’s tenure distribution has changed in the manner reported by the mass media. As
shown in Table 1, the fraction of men with less than 3 years of service increased 1.03
percentage points while the fraction of men with 10 or more years of seniority
decreased 1.88 percentage points. As shown in Table 2, the falloff in the proportion
of long-tenured males has been especially steep for those in the middle to latter part
of their work lives. The share of 35-44 year old men who were with their current
employers for at least 10 years dropped sharply, by 8.31 percentage points. Among
men age 45-54, the fraction with at least 10 years of tenure plummeted 9.8 percentage
points; and among men age 55-64, the proportion fell 12.69 percentage points.
20BLS, Employee Tenure in 2000.
21BLS. Unpublished data from the Current Population Survey.
Table 1. Tenure Distribution of Employed Wage and Salary Workers
Age 16 or Older by Gender, 1983 and 2000
GenderTotal (000)Less than3 years3-5 Years6-9 Years10 or moreyears
1983 85,353 40.43 22.04 12.04 25.15
2000 120,303 40.16 22.18 11.05 26.60
1983 45,778 37.62 20.14 11.71 30.18
2000 62,306 38.65 22.03 11.01 28.30
1983 39,575 43.68 24.24 12.43 19.33
2000 57,997 41.79 22.34 11.09 24.78
Note: Percentages may not add to 100 due to rounding.
Source: U.S. Bureau of Labor Statistics. Unpublished data from the Current Population Survey.
More sophisticated studies of job stability have controlled for differences in
workers’ personal and employment characteristics and have tried to adjust for various
shortcomings of the above-described data from the Current Population Survey’s
tenure supplement.22 Some researchers have used other surveys in their examination
of trends in job stability, but they too have drawbacks.23
22The wording of questions in the Current Population Survey (CPS) tenure supplement
changed such that pre-1983 responses might lead to understatement of tenure (i.e., before
1983 respondents were asked about time spent in their job while since then they were asked
about time spent with their current employer). Individuals’ responses are clustered around
certain tenure intervals (e.g., reporting durations of job tenure ending in 0 or 5), which
suggests recall problems or rounding errors. The nonresponse rate to tenure questions
sometimes varies from one survey year to another, and this can bias estimated retention rates.
23One alternative is the Panel Study of Income Dynamics (PSID). Unlike the CPS, from
which researchers must derive synthetic age cohorts from cross-sectional data, the PSID is a
longitudinal survey (i.e., it follows the same individuals over time). Estimates based on PSID
Table 2. Tenure Distribution of Employed Male Wage and Salary
Workers by Selected Age Groups, 1983 and 2000
Male workersTotal(000)Less than3 years3-5 Years6-9 Years10 or moreyears
35-44 years old
1983 9,715 25.34 17.66 13.76 43.15
2000 17,023 28.56 22.41 14.20 34.84
45-54 years old
1983 7,156 16.99 12.47 10.48 59.95
2000 12,858 21.33 17.09 11.43 50.15
55-64 years old
1983 5,062 14.44 10.90 8.67 65.98
2000 5,841 18.32 17.14 11.25 53.30
Note: Percentages may not add to 100 due to rounding.
Source: U.S. Bureau of Labor Statistics. Unpublished data from the Current Population Survey.
data may be affected by attrition of respondents and may be imprecise given its small sample
size. Like the CPS, the PSID’s tenure questions have changed over the years. There also are
inconsistencies between years in the same individual’s responses to the PSID tenure questions.
Another alternative is the National Longitudinal Survey of Youth (NLSY) which, like the
PSID, suffers from attrition of respondents who are queried over time. The NLSY collects
information in such a way as to minimize recall problems and rounding errors. Unlike the
CPS and PSID, its questions about job changes have been consistent over time. Like the
PSID, in which only household heads were asked about tenure, consistent information from
the NLSY is available only for men; the NLSY originally focused on young men rather than
youth generally. While the CPS and PSID samples are representative of the entire population,
the NLSY is not.
Results from these studies are mixed, with some estimating sizable decreases24
and others finding little change25 in the trend of aggregate job stability through the
1980s. The disparate outcomes for job stability estimated in these studies and those
covering the 1990s (discussed below) largely result from the unique characteristics
of the databases, the varying methods researchers used to overcome the databases’
shortcomings, the diverse measures of job stability developed by analysts,26 and the
different time periods covered.27
One set of economists who extended their analysis from the 1980s through 1995
reported a modest decrease in overall job stability.28 Neumark, Polsky and Hansen
noted that the decline might have been steeper were the labor force not aging toward
the years of generally fewer job changes. In contrast, Stewart found that job stability
increased as the rate of job separations across all workers had fallen slightly between
1975 and 1995.29 And, in a third study, Farber concluded that aggregate job duration
was unchanged over the 1973-1993 period.30 Thus, no consensus exists in the
economic literature that overall job stability has changed over time.
The empirical research does confirm that groups within the labor force have
exhibited divergent trends in job tenure. Studies consistently agree that women’s job
stability has increased in recent decades as they have become more committed to
24Swinnerton, Kenneth A., and Howard Wial. Is Job Stability Declining in the U.S.
Economy? Industrial and Labor Relations Review, v. 48, no. 2, January 1995; Rose,
Stephen. Declining Job Security and the Professionalization of Opportunity. Washington,
D.C., National Commission for Employment Policy, May 1995; and Monks, James, and
Steven D. Pizer. Trends in Voluntary and Involuntary Job Turnover. Industrial Relations,
v. 37, no. 4, October 1998.
25Diebold, Francis X., David Neumark, and Daniel Polsky. Job Stability in the United States.
Journal of Labor Economics, v. 15, no. 2, 1997.
26Analysts have calculated different indicators of job stability including the retention rate (i.e.,
the probability of workers who have a given tenure level staying additional years with their
current employers), the turnover or separation rate (i.e., the fraction of all employed
respondents who left a job in one period and were in another job or were unemployed or no
longer in the labor force in a subsequent period), and the trend in the distribution of job tenure.
27Jaeger, David A., and Ann Huff Stevens. Is Job Stability in the United States Falling?
Reconciling Trends in the Current Population Survey and the Panel Study of Income
Dynamics. Journal of Labor Economics, v. 17, no. 4, part 2, October 1999.
28Neumark, David, Daniel Polsky, and Daniel Hansen. Has Job Stability Declined Yet? New
Evidence from the 1990s. Journal of Labor Economics, v. 17, no. 4, part 2, October 1999.
(Hereafter cited as Neumark, Polsky and Hansen, Has Job Stability Declined Yet?)
29Stewart, Jay. Has Job Mobility Increased? Evidence from the Current Population
Survey: 1975-1995, Working Paper 308. Washington, D.C., February 1998. (Hereafter
cited as Stewart, Has Job Mobility Increased?)
30Farber, Henry S. Are Lifetime Jobs Disappearing? Job Duration in the United States:
1973-1993, in Haltiwanger, John, Marilyn Manser, and Robert Topel (eds.) Labor Statistics
Measurement. Chicago, Ill., University of Chicago Press, 1998. (Hereafter cited as Farber,
Are Lifetime Jobs Disappearing?)
ongoing participation in the paid labor force.31 The picture for men is clouded, with
some analysts estimating more job changes32 and others near constancy33 through the
first part of the 1990s. Despite these disparate findings for men, on average the
research does suggest that the job stability of less educated men (i.e., those with less
than 12 years of schooling) and of older, long-tenured men (i.e., about 10 or more
years of tenure or work experience) has decreased through the first half of the
1990s.34 Perhaps, rather than workers moving from one job to another more often
today than in the past, the composition of short-tenured and long-tenured workers is
Job tenure reflects both voluntary (e.g., quits and retirements) and involuntary
(e.g., layoffs and plant closings) labor mobility. While tenure is a good measure of
job stability, it is not as good an indicator of job security. Job security concerns only
involuntary (i.e., employer-initiated) separations, the incidence of which could have
increased even as overall job duration has held steady. For example, many workers
who thought they held secure jobs might be permanently laid off and others,
observing their plight, might decide to stay put rather than quit to seek opportunities
elsewhere; as a result, the dampened quit rate might fully offset the elevated dismissal
rate thereby creating stable job durations despite workers’ heightened vulnerability to
There is a widespread impression that more workers today are unable to keep
their jobs for as long as they like despite their continued good performance. Not only
could this come about because firms are permanently laying off greater numbers of
employees than in the past, but also because firms are hiring less and contracting more
with business services companies (e.g., for janitorial or photocopying personnel),
staffing companies (e.g., for temporary workers) or independent contractors (e.g., for
computer systems expertise). The trend in job security as measured by involuntary
job loss and contingent employment arrangements is analyzed below.
31Schmidt, Stephanie R., and Shirley V. Svorny. Recent Trends in Job Security and Stability.
Journal of Labor Research, v. 19, no. 4, fall 1998.
32Bernhardt, Annette, Martina Morris, Mark S. Handcock, and Marc A. Scott. Trends in Job
Instability and Wages for Adult Young Men. Journal of Labor Economics, v. 17, no. 4, part
2, October 1999; Farber, Are Lifetime Jobs Disappearing?; Marcotte, Dave E. Has Job
Stability Declined? Evidence from the Panel Study of Income Dynamics. The American
Journal of Economics and Sociology, v. 58, April 1999 (Hereafter cited as Marcotte, Has Job
Stability Declined?.); and Neumark, Polsky and Hansen, Has Job Stability Declined Yet?
33Stewart, Has Job Mobility Increased?
34Farber, Are Lifetime Jobs Disappearing?; Marcotte, Has Job Stability Declined?;
Neumark, Polsky, and Hansen, Has Job Stability Declined Yet?; and Stewart, Has Job
35Valletta, Robert G. Has Job Security in the U.S. Declined? FRBSF Weekly Letter, no. 96-
Involuntary Job Loss
The Displaced Worker Survey (DWS) was initiated in the 1980s to develop
comprehensive information on workers’ allegedly greater risk of job loss. According
to data from the DWS, the trend in the displacement rate (i.e., the number of job
losers as a proportion of persons employed) has generally reflected the trend in the
unemployment rate — increasing in recessionary periods (e.g., 1981-1982 and 1990-
1991) and decreasing as economic recoveries lengthened. (See Table 3.) As shown
by declining displacement rates since the last recession, job security has increased
in the last several years.
Table 3. Displacement Rates for Workers Age 20 or Older by Job
Workers with 3 orWorkers with less
Survey periodAll workersmore years of jobthan 3 years of job
1981-1982 5.7 3.9 8.9
1983-1984 4.1 3.1 5.7
1985-1986 4.0 3.1 5.4
1987-1988 3.2 2.4 4.7
1989-1990 4.3 3.1 6.5
1991-1992 4.9 3.9 6.6
1993-1994 4.4 3.3 6.5
1995-1996 3.9 2.9 5.5
1997-1998 3.4 2.5 4.9
Source: Hipple, Steven. Worker Displacement in the mid-1990s. Monthly Labor Review, July
When roughly the same points in the business cycle are compared, however, job
security appears to have slightly diminished in the 1980s compared to the 1990s. As
shown in Table 3, the risk of job loss across all workers rose 0.2 percentage points
from 3.2% in 1987-1988 to 3.4% in 1997-1998. Schultze also concluded that the
cyclically-adjusted displacement rate rose somewhat between the 1981-1982 and
Although the increase in the cyclically-adjusted displacement rate before the mid-
1990s was not trivial, “its absolute magnitude was a good bit less than one would
infer from the media treatment of the “downsizing” problem.”36
36Schultze, Charles L. Has Job Security Eroded for American Workers?, p. 41-43, in Blair,
Margaret M., and Thomas A. Kochan (eds.) The New Relationship: Human Capital in the
This small change might be related to the twofold increase since the late 1980s
in the fraction of workers who lost jobs because their “position or shift was
abolished.” In contrast, the share of workers who lost jobs because their positions or37
shifts were eliminated remained fairly constant during the 1980s. This reason for
displacement (i.e., abolition of position/shift)38 comes closest to capturing corporate
restructuring — a phenomenon whose advent appears coincident with the 1990s
recession and which has continued during the remainder of the decade.39 Corporate
downsizing appears to have focused on one type of employee in particular: 39% of
white-collar workers displaced in the 1995-1996 period offered position/shift
abolishment as the reason for job loss compared to 17% of displaced blue-collar
Farber also found evidence to support the notion that corporate restructuring has
had an adverse impact on job security generally and on the job security of managers
within the white-collar ranks especially. After adjusting the DWS data for changes
in question wording and recall period, among other things, he estimated that among
all 20-64 year old workers the rate of job loss due to position/shift abolished was
higher in the 1990s than in the 1980s.41 This was especially true for older workers
(i.e., 45-64 year olds) and more educated workers (i.e., workers with at least
postsecondary schooling). In addition, all of the increase in the displacement rate of
managers between 1987-1989 and 1991-1993 was related to their positions being
There is a potentially important message in this finding regarding managers. At
least two interpretations of corporate restructuring have implications for job
security. The first is that corporations are moving toward a mode of organization
that relies less on long-term relationships with workers and, hence, less investment
in workplace-specific skills. This trend would imply a permanent increase in rates
of job loss. The second interpretation is that corporations are adjusting their mix
of workers to reflect new production arrangements. This trend would imply a
“onetime” adjustment in the number of managers, resulting in a temporary increase
American Corporation. Washington, D.C., Brookings Institution Press, 2000. (Hereafter
cited as Schultze, Has Job Security Eroded for American Workers?)
37Valletta, Rob. Job Loss during the 1990s. FRBSF Economic Letter, no. 97-05, February
38Other reasons for displacement include “slack work” and “plant closings or relocations.”
Relatively more displaced workers report slack work as the reason for their dismissal during
recessions, while the fraction of workers separated due to plant closings/relocations has held
fairly steady over time.
39Levine, Corporate Downsizing.
40Hipple, Steven. Worker Displacement in the mid-1990s. Monthly Labor Review, July
41Farber, Henry S. The Changing Face of Job Loss in the United States, 1981-1995.
Brookings Papers on Economic Activity: Microeconomics, 1997. Washington, D.C., The
Brookings Institution, 1997. (Hereafter cited as Farber, The Changing Face of Job Loss in
the United States, 1981-1995.)
in rates of job loss for managers. The [subsequent] decline in job-loss rates for
managers in the 1993-95 period is preliminary evidence consistent with this [latter]42
Seniority still confers some measure of job security according to the much higher
displacement rates of short-tenured as compared to long-tenured workers in Table
3. (The U.S. Bureau of Labor Statistics defined long-tenured workers as those
employed at least 3 years by the firms that terminated them.) Nonetheless, Valletta
calculated that the displacement rate for employees with at least 15 years of job tenure
was higher in the 1991-1995 period than in the 1989-1991 period, while at the same
time rates for less senior workers fell substantially. This finding, along with atypically
high displacement rates for some other members of the labor force during the ongoing
economic expansion (e.g., white-collar workers), led Valletta to suggest that “the key
source of these displacements (position or shift abolition) was aimed at specific
groups of employees rather than a firm’s entire workforce (as is the case with the
plant closing or slack work categories).”43
Limiting their analysis of the DWS data to high-seniority workers, whom they
defined as having at least 5 years of job tenure, Aaronson and Sullivan also concluded
that — despite improvement in aggregate job security between 1990 and 1995 — the
risk of job loss from the abolition of shifts/positions rose sharply. Although the
chance of losing a job for this reason decreased somewhat in 1997, it continued to be
twice as high as during the 1980s.44
The researchers, much like Farber, Valletta, and Schultze,45 found that
displacement has become more “democratic” over the years. In other words, groups
that previously were fairly immune to layoffs became less so during the 1990s
recession (i.e., men, workers with college degrees, those in white-collar occupations
or in the service sector), while groups with high displacement rates during the 1980s
recession fared much better in the 1990-1991 recession (i.e., women, workers lacking
a college degree, those in blue-collar occupations or in the goods-producing sector).
In an attempt to reconcile the falling displacement rates since the mid-1990s with
workers’ continuing anxiety about job security, Aaronson and Sullivan speculated that
42Ibid., p. 77.
43Valletta, Job Loss During the 1990s, p. 3.
44Aaronson, Daniel, and Daniel G. Sullivan. Recent Trends in Job Displacement. Chicago
Fed Letter, no. 136, December 1998.
45In Schultze, Has Job Security Eroded for American Workers?, p. 47, the economist
calculates that in the early 1980s
permanent layoffs among white-collar workers were one-third as large as layoffs
among blue-collar workers. Since then the white-collar rate has risen
substantially, while the blue-collar rate has irregularly edged downward, until in
the early 1990s the white-collar rate reached and then remained at four-fifths of
the blue-collar rate. [While] a relatively high frequency of layoffs among blue-
collar workers has most probably always existed ... layoffs of this magnitude are
a new thing for white-collar workers, which may help explain the vivid public
perceptions and media publicity about layoffs in recent years.
the “increased democratization of displacement” may be prompting “many more
workers ... [to now] consider themselves at risk for job loss.”46
In contrast, an analysis based on the PSID concluded that the risk of job loss
increased between the 1968-1979 period and the 1980-1992 period for a small sample
of male household heads age 25-59 who had been with their firms for at least 12
months and who had worked at least 1,000 hours during the previous year.47 Reasons
why this estimate differs from those in other studies that overall job security has not
undergone a long-term decline include the following: (1) the PSID asked about job
changes that occurred over a 12-month period during most years between 1968 and
1992, but from 1984-1987 the reporting period was closer to 18 months which raises
the possibility of more job separations having occurred during the 1980s due to the
longer reporting period; (2) the analysis ended in 1992, before the economic recovery
was well underway; and (3) by focusing solely on men, the results tend to overstate
the aggregate decline in job security during the 1980s compared to the 1970s because48
women’s risk of job loss rose less than that of men.
In another study that also covered multiple decades (mid-1970s to mid-1990s),
Stewart based his finding of stable job security on estimates of constant employment-49
to-unemployment (EU) transition rates. He provided two possible explanations for
the public’s perception of decreased job security in the 1990s, the first being the
unusually long recovery time from the mild 1990-1991 recession. The atypically weak
rebound on the employment front was dubbed “the jobless recovery” until about
1995. For example, because it took 3-4 years for the EU transition rate of men with
at least a high school education to return to its pre-recession level, people might have
come to believe the situation was permanent rather than transitory. In addition, EU
transition rates were higher during the mild 1990s recession than the deep 1980s
recession for male college graduates who historically have been comparatively
insulated from cyclical shocks to the economy. This also was the case for older men
(i.e., those with 21 or more years of work experience). Stewart therefore
hypothesized that the high EU rates for these fairly immune groups during a weak
economic downturn might have prompted people to think that something other than
a short-run decline in job security was taking place.50
46Aaronson, Daniel, and Daniel G. Sullivan. The Decline of Job Security in the 1990s:
Displacement, Anxiety, and Their Effect on Wage Growth. Economic Perspectives, first
quarter 1998, v. 22, no. 1, p. 18.
47Boisjoly, Johanne, Greg J. Duncan, and Timothy Smeeding. The Shifting Incidence of
Involuntary Job Losses from 1968 to 1992. Industrial Relations, v. 37, no. 2, April 1998.
48Stewart, Jay. Did Job Security Decline in the 1990s? March 1, 1999. (Hereafter cited
as Stewart, Did Job Security Decline in the 1990s?.)
49Employment-to-unemployment (EU) transitions were considered to have occurred when an
individual worked during the previous year and was unemployed during the Current
Population Survey’s reference week in March in the current year. The researcher determined
the that the EU transition rate tracked job losers well and therefore was a good proxy for job
50Stewart, Did Job Security Decline in the 1990s?
It could be argued that the public’s perception is correct, and instead, that the
empirical research is missing something. Perhaps the disconnect is that the media
accounts that have shaped public opinion have focused on downsizing at the nation’s
largest corporations, while most workers are employed by firms with less than 1,000
employees and the databases that analysts use question all individuals regardless of
firm size.51 Allen, Clark, and Schieber looked specifically at what has happened
during the 1990s to job stability at 51 large corporations to determine whether their
experiences were accurately reflected in the popular press. They further divided their
small, unrepresentative sample between large companies whose employment had
grown (19) or shrunk (32). As would be expected, the likelihood of employees
remaining at their current firms was higher at expanding versus downsizing firms;
however, the probability of mid-career employees (i.e., 10-19 years of service) staying
with their current employers was virtually the same regardless of the firm’s job growth
trend. Contrary to media accounts, this finding implies that downsizing has not been
aimed at mid-career workers. In addition, the researchers estimated that the retention
rate of junior employees (i.e., 0-4 years service) fell but that of senior employees (i.e.,
20 or more years of service) was unaffected among the large corporations that
downsized their operations. In other words, as has traditionally been the case, they
found that short-tenured workers bore the brunt of layoffs in the 1990s.
Lastly, in a study that analyzed both job stability and job security over the 1979-
1996 period, Farber similarly concluded that employers have not been focusing their
layoffs on senior employees (i.e., those with more than 10 years or more than 20 years
of service). After adjusting for changes in personal and job characteristics over time,
he estimated that the share of men in long-term jobs fell but that corporate downsizing
does not appear to have been the culprit because the rate of job loss among long-
tenured men did not rise between 1979 and 1996. Farber suggested two reasons why
job stability has diminished for long-tenured men:
(1) women’s long-run increase in labor force attachment may have prompted
employers to regard them as “viable substitutes for men in long-term employment
relationships,” or (2) the basic employment relationship may have been “changed52
toward a model with less long-term job security,”
a possibility that is discussed in the following section of this report.
51Allen, Steven G., Robert L. Clark, and Sylvester J. Schieber. Has Job Security Vanished
in Large Corporations? Working Paper 6966. Cambridge, Mass., National Bureau of
Economic Research, February 1999.
52Farber, Henry S. Trends in Long Term Employment in the United States, 1979-1996.
Working Paper #384. Princeton, N.J., Industrial Relations Section, Princeton University.
July 1997. p. 25.
Contingent Work Arrangements
The label commonly applied to jobs that are less secure than traditional positions
(i.e., jobs presumed to be permanent barring poor individual or company
performance) is contingent work arrangements. Systematic, comprehensive statistics
on these short-duration employment relationships did not become available until BLS53
conducted its first survey on the subject in 1995. Before then, analysts cobbled
together statistics on contingent workers from a variety of sources which resulted in
double-counting that inflated the estimate of the group and that affected its
composition. Based on BLS’ broadest definition of contingent work arrangements,
they numbered more than 5.6 million in 1999 or less than 5% of employed persons.
(See footnotes to Table 4 for the BLS’ three alternative definitions of contingent
Table 4. Selected Data on Contingent Workers, 1995, 1997, and 1999
Contingency definitionsaContingent workers (000)Contingency rateb
Source: Hipple, Steven. Contingent Work: Results from the Second Survey. Monthly Labor
Review, November 1998, and Contingent and Alternative Employment Arrangements, February
aThe generic definition of contingent workers is persons who do not regard themselves as having an
understanding, either explicit or implicit, with their employers that their positions are permanent.
BLS developed three operational definitions of contingent workers. The narrowest definition is wage
and salary workers who worked for their current employer for 1 year or less and who expect to
continue with the same firm for 1 year or less. Temporary help industry workers and employees of
53Some researchers do not agree with BLS’ definitions of contingent workers. For more
information see: Levine, Temporary Workers as Members of the Contingent Labor Force.
business services contractors are asked to respond to the job duration requirements with reference
to the firms that issue their paychecks. Wage and salary workers who report that they could stay
with their firms but expect to leave within the year for personal reasons are excluded as are the self-
employed and independent contractors. The intermediate definition adds to the narrowest definition
of contingent workers those self-employed persons and independent contractors who expect to be,
and have already been, in these work arrangements for 1 year or less. Temporary help industry
workers and employees of business services contractors are asked to respond to the job duration
requirements with reference to the customers to whom they were assigned. The broadest definition
removes the requirements about current and expected job tenure for wage and salary workers. Thus,
most persons who do not expect their employment to last (except for personal reasons) are included.
The job duration requirements are not relaxed for self-employed persons or independent contractors.
bThe contingency rate is the share of the employed population in time-limited jobs.
With all three data points in the current decade, it is not possible to determine
a long-term trend in job security as measured by the incidence of contingent
employment arrangements. As the proportion of workers with contingent jobs has
decreased since 1995, it suggests that job security has increased as the 1990s
economic expansion has lengthened. The inference of enhanced job security in the
last few years is reinforced by other data in the contingent worker survey. Almost
one-fourth of contingent workers in 1995 said they were in these short duration jobs
because it was “the only type of work [they] could find.” Two years later, under one-
fifth gave the same response. In contrast, the fraction of workers who chose
contingent jobs for personal reasons (e.g., family obligations, scheduling flexibility,
and attending school) increased between 1995 and 1997.54
A long-run decline in overall job stability does not appear to have occurred to
date, in part, because women’s increased job tenure has offset any decrease in some
men’s job duration (e.g., males with long years of service at their employers). Job
security also does not seem to have diminished. The spread of unusually high
displacement rates during the mild 1990-1991 recession to groups that traditionally
were insulated from economic downturns and with whom many individuals compare
themselves (e.g., middle-aged and older males) may have misled the public into
believing that the average worker’s risk of job loss or necessity of accepting
contingent jobs was permanently rather than temporarily elevated. The labor market’s
comparatively slow rebound from the mild 1990s recession also may have contributed
to the public’s impression that a long-run rather than short-run (cyclical) phenomenon
was taking place. Apparently, then, one argument for enacting pension reform — that
the typical worker today is more often moving from job to job — is not supported by
the available empirical evidence.
Nonetheless, policymakers may think that job-changers are at risk of
accumulating insufficient pension funds for use in retirement even at the current level
of labor mobility and that this circumstance justifies considering further modification
of the nation’s private pension system. For example, many workers:
54Devens, Richard M. At Issue: Gains in Job Security. Monthly Labor Review, March
!are not assured of obtaining pension benefits when they change jobs,
!often leave jobs before completing the typical 5-year vesting period, or
!do not preserve the value of vested balances from their former jobs because
pension portability is not widespread or because they cashout accrued funds
for immediate use.