This article was published in TSE science magazine, TSE Mag. It is part of the Autumn 2023 issue, dedicated to “The World of Work”. Discover the full PDF here and email us for a printed copy or your feedback on the mag, there.
When is it time to change job? Which type of contract is best? Eugenia Gonzalez-Aguado explains how our entire careers can be shaped by the laws and institutions that govern labor markets.
How should students prepare to navigate their professional careers?
Finding a job that fits is often a process of trial and error. This is especially true at the beginning of working life when we have less information about our skills, the skillset required for different jobs, and our tastes. It is also when firms start to learn more about a worker, as they gain experience. It’s a two-way matching process for both workers and firms.
Students should be open-minded about which jobs are a good fit: your first job is unlikely to be your ideal job. They should also pay attention to the general economic conditions and trends about what kind of skills are required. For example, over the past decade we have seen a rise in demand for data analysis or computational science.
Is it better to stick to the same occupation or embrace career mobility?
There are many different scenarios in which workers change occupations. In most cases, it is after being unemployed. The young tend to change occupations more often: with experience, they learn about their skills and what kind of jobs are more fitted for them.
When considering a different occupation or industry, workers face a critical trade-off. There is plenty of empirical evidence about the advantages of staying put. For example, we see large increases in wages for workers that stay in the same occupation relative to those who don’t. These returns may come from learning on the job.
Alternatively, workers may believe their skills or preferences are not well aligned with their current occupation. Changing careers may then offer the possibility to find a better match, improving their productivity, wages, and conditions such as job security and flexibility. In the data, we observe that unemployed workers who change career are less likely to fall back into unemployment.
Career mobility tends to follow ups and downs in the economy. During booms there are more jobs available so workers might find it easier to move, whereas in recessions they may be more afraid of leaving their current job as opportunities become more scarce.
Sector-specific recessions can also cause “forced” occupational mobility that may be very costly for prime-aged workers. For example, mass layoffs in a given industry can lead to lower earnings as specialized workers are obliged to learn a new occupation.
How do job contracts affect workers, employers and economies?
Many European and Latin American countries have two-tier labor markets with two distinct types of contract: short-term contracts with very low firing costs and permanent contracts with very high firing costs. The policies that created flexible contracts were meant to increase the supply of jobs, making it easier for firms to hire workers. Permanent contracts were encouraged to increase job security.
In some cases, however, these policies have created highly dualized markets in which some workers flit precariously between short-term contracts while others stay in the same job for most of their career, regardless of how suitable that job is for them. The United States is at the other extreme, where employment protection is very low but employment creation is relatively easier. This generates a dynamic market with high rates of job creation and job destruction.
Firms often complain that permanent contracts reduce productivity by discouraging firms from hiring and firing, while increased job security discourages workers from moving to jobs that are a better fit for their skills. But temporary contracts can also lower productivity because workers may not stay in the job long enough to acquire sufficient experience and occupation-specific human capital.
FURTHER READING
Dual Labor Markets, Unemployment and Career Mobility, Eugenia González-Aguado, C. Busch, I. Gálvez-Iniesta, L. Visschers, 2016.
