Since 2012, there has been a 7.4 percent decline in tenure (the number of years employees 25 years or older have been with their current organization), according to the Bureau of Labor Statistics (BLS). For employers, this sharp decline in “employee loyalty” represents a significant cost in resources as replacements are hired and trained. In combination with the impact high turnover has on employee morale and overall productivity, these costs are undoubtedly a major reason why more than 66 percent of companies report that retention is a major concern.
There are various explanations for the decline in employee loyalty. Some of the decline is likely due to employees quitting to get higher pay after years of slow wage growth, while further decline may be explained by a fundamental shift in the relationship between employers and employees.
Here we offer two other explanations. First, the decline in organization tenure is the result of dynamic economic markets. Second, technological innovations along with changes in benefits have made it easier and cheaper for employees to job hop.
It is also important to note a decline in organization tenure is not an indication millenials are killing employee loyalty. While millenials have been at their current organizations for less time than baby boomers and Gen Xers, much of these differences are due to lifecycle and not generational differences.
Dynamic Markets Lead to Employee Disloyalty
Organization tenure numbers in conjunction with other economic indicators, such as wage growth and the unemployment rate, suggest employees are more comfortable leaving their jobs now than they were five years ago. This is both the result and an indication of a robust economy.
The idea that dynamic markets can cause low organization tenure becomes clear when we look at which metro areas have employees staying at their organizations for the shortest amount of time. Median organization tenure is fewer than three years for San Francisco, San Jose, Seattle, Austin, Washington, D.C. and Denver. With the exception of D.C., these cities also have had considerably higher-than-average wage growth since 2006, according to the PayScale Index.
These cities also have a strong tech presence, which is another factor driving down the amount of time an employee spends at an organization. While 2018 BLS data puts median organization tenure across all industries at 4.2 years, it is only 2.8 years in the tech industry, according to PayScale’s data. This low number is likely due to several factors, but chief among them is the high demand for tech talent. It is relatively easy for product managers, programmers, scrum masters and data scientists to find lucrative jobs. In fact, it is not uncommon for tech workers to be contacted by multiple recruiters every month.
While these tech hubs have a notably low median organization tenure, there are several metro areas in our sample that come closer to the national average. In Pittsburgh, Milwaukee, Cleveland, Cincinnati and St. Louis, all former manufacturing boomtowns, employees have spent more than 3.8 years at their current organizations. Of these cities, only Pittsburgh has had considerably faster wage growth than the economy as a whole since 2006.
These two groups of cities are both defined by a hard-working and innovative workforce, but the difference in job opportunities and demand for certain skills in their respective economies has left a visible impact on how long people stay with an organization.
Job Hopping Is Easier Than Ever
Readers who remember the 90s may recall the Friends episode, “The One With All the Poker.” Rachel wants to quit waitressing job she hates. She has a stack of her resumes printed out and sits down with the rest of the Friends crew to stuff envelopes and mail them out to pretty much any company in New York City. While doing so, they discover that her “compuper” skills might not be as good as she thinks they are, and they have to start the process all over.
This was how job hunting worked in 1996. You sent out one standard resume to all the companies you could think of. You combed through newspaper want ads. You maybe even went door-to-door filling out applications in person.
This process was very costly in terms of time and other resources. If you had a job you weren’t completely happy with, but was good enough, these costs might deter you from looking for another one. After all, Rachel stuck it out at Central Perk for two years despite hating it.
If Rachel were working at Central Perk in 2019, she would turn to sites like LinkedIn and Indeed. In a matter of seconds, she would fix the typo in her resume and even tailor it to each job to which she applied. On her break, she could easily submit her perfectly crafted resume to multiple jobs.
Technological changes are not the only thing making job hopping easier. Over the last 30 years, there has been a transition from pension plans to 401ks. Pension plans guaranteed workers a stream of income once they retired, but many of these plans required a minimum number of years at an organization before the plan vested. If you left your employer before retiring, you had limited options to take your pension with you, and if you left before your pension vested, you usually lost it altogether. In effect, a pension plan increased the cost of leaving a job and likely discouraged some workers from doing so. The switch to 401ks allows workers to quit and take their retirement savings with them from job to job, making it less costly for workers to explore other career opportunities.
While losing talented employees may not be good for companies, it is good news for the economy when employees are able to easily find a different role that best suits their skills. Reducing friction in the labor market, either by making job searches more convenient or by lowering the cost of leaving an employer, facilitates finding the best fit between employees and employers. When you have the right people doing the right job, the economy wins.
Millennials Aren’t Killing Employee Loyalty
Much ink has been spilled on how millennials are killing everything. While our data clearly shows median organization tenure is lower for millennials than other generations, much of this is likely due to lifecycle rather than generational differences. In other words, if you were to take a baby boomer or Gen Xer and make them 25 years old in 2019, they would behave a lot like millenials do.
|Generation||2018 Median Org Tenure|
|All (from the BLS)||4.2|
|Gen X: 1965-1981||4.68|
|Baby Boomer: 1946-1964||7.15|
The first thing to consider is the youngest millennials are just entering the job market, and it is natural they should have spent less time at their current employer. When baby boomers and Gen Xers were just entering the labor market, they too had spent less time at a given organization than their older peers. This is simple math. You can’t spend seven years at one organization if you have only been working for two.
Another lifecycle issue that is important to remember is baby boomers who are still in the workforce are now nearing retirement. For them it may not be worth it to find a new job, not to mention face a likely change in health care plans and doctors, for only a few more years of work. This is especially true since older workers face unique challenges in today’s job market, making it even less appealing for boomers to start sending out their resumes.
There are, however, lifecycle issues that go beyond simple math or retirement considerations. These are best illustrated by looking again at Rachel from Friends. When the show first aired, Rachel was in her mid-20s and had no idea what she wants to do. She spent two years at Central Perk before doing a brief stint sorting hangers at a hole-in-the-wall fashion company. From there, she took an assistant buyer position at Bloomingdale’s before being demoted to a personal shopper. Finally, five seasons into Friends, she has figured out what she wants to do and has acquired the skills and the connections necessary to land her dream job at Ralph Lauren.
This example of a Gen Xer’s career trajectory shows early-career job hopping is not something millennials invented. In fact, research by Pew suggests millennials are changing jobs less frequently than Gen Xers did when they were in their 20’s. This early-career job hopping is natural. Many people early in their careers are trying to figure out what they want the rest of their career to look like. Even if they know where they want to end up, chances are they need to do many different jobs in order to acquire the skills they will need to get there.
While millenials have lower tenure now, it is likely that as they advance in their careers the number of years they spend at an organization will increase. Due to the evolution of technology and benefits discussed above, they may not spend their entire career at the same company, but they are not killing employee loyalty.
Many factors go into an employee’s decision to quit their job. However, there are some broader trends that play into that choice. Dynamic markets with abundant job opportunities, technological changes and shifts in benefits structures have all made it easier for employees to quit. With these changes, the economy will see the benefits as workers find jobs that best use their unique set of skills. Organizations may lose out, but the economy and its workforce win.
Unless otherwise noted, organization tenure numbers come from responses to PayScale’s salary survey from March 1, 2018 to March 1, 2019. Among other things, respondents are asked, “Years with this employer.”
The metro data is based on 200,959 responses. The generations data is based on 279,061 responses.
All organization tenure numbers reflect the median number of years employees have spent at their current organization.
For more information regarding PayScale’s proprietary compensation model and methodology, see https://www.payscale.com/data/payscale-methodology-explained.