06 Sep. 2017 | Comments (0)
Last week, we released the results of the latest annual survey of job satisfaction. The Conference Board job satisfaction survey was first released in 1987, which allows for comparisons over a long period of time. Job satisfaction improved for the sixth year in a row, and for the first time since 2005, job satisfaction has surpassed the 50 percent mark, i.e. more than half of all workers are satisfied with their jobs.
Despite six straight years of improvement, job satisfaction levels in 2016 are still well below the levels seen in 1995 and 1987. In fact, the levels in 1987 and 1995 are significantly above any measures since 2000. Why was job satisfaction so much higher in 1987 and 1995, and are we likely to reach those levels again in the future?
The Deterioration of Job Satisfaction since the 1980s
The decline in job satisfaction compared to thirty years ago is a result of several long-running trends in the US labor market:
1. Weak earnings growth. In recent decades the earnings and purchasing power of most Americans has been stagnant. As a result, improvement in living standards and retirement preparedness suffered.
2. Rising income inequality. Job satisfaction is determined not only by the absolute purchasing power of ones’ earnings but also by its relative purchasing power compared to other people in society. In recent decades income inequality has dramatically risen in the United States.
3. Declining job security. In recent decades job security has declined significantly in the private sector. Layoffs became a frequently used cost reduction tool—and not just in times of crisis.
4. An increase in work intensity. Studies show that in recent decades a growing number of workers feel that they have too much work and must work too fast and too hard.
Why Did Job Quality Deteriorate?
In the twenty-five years between the late 1940s and the early 1970s the labor market in the United States was tight, with the unemployment rate mostly below its natural rate. But, a combination of several important trends led to an abundance of labor supply in the following decades:
1. A large generation of baby boomers started entering the labor force in the late 1960s through the late 1980s.
2. The labor force participation of women rose through the 1990s.
3. Rapid automation and offshoring reduced the demand for workers in the United States.
4. The Great Recession led to the largest job loss since the Great Depression.
As a result, except for the dotcom boom, tight labor markets have been largely absent since the mid-1970s. Unemployment was well above the natural rate of unemployment on average during this period. When the labor market is loose, workers have less power compared to employers, and elements of job quality deteriorate.
At the same time, several structural trends in the US economy contributed to the deterioration of job quality. Some of them were related to the loose labor market but some were completely independent:
1. In the last decades of the twentieth century, the financial sector rapidly increased in size and affected the management of companies. Partly because of this, maximizing shareholder value came to dominate the goals of many companies at the expense of other stake holders such as employees. The loyalty of employers to employees declined as layoffs became much more frequent.
2. The spread of pay for performance and the rapid increase in executive compensation contributed to the growing increase in income inequality.
3. In recent decades, the share of union jobs in US employment has been gradually declining, reducing employee bargaining power in determining pay and benefits, thereby reducing worker’s job security and raising income inequality.
4. In recent decades, the business sector outsourced many jobs—typically lower-paying ones—to business service companies. In such jobs, overall compensation and benefits tend to be less generous.
5. In recent decades, market concentration significantly increased in most industries, allowing those firms to earn supernormal profits. A lesser share of total business revenue was directed to employee compensation.
Will Job Satisfaction Get Back to 1995 or Even 1987 Levels?
We have experienced six straight years of improvement in job satisfaction, but job satisfaction remains well below 1995 and 1987 levels. Why did job satisfaction improve, and are we likely to get back to the 1995 and 1987 levels? What explains this recent trend, and is it likely to continue? Since 2010, improving economic conditions have contributed to the gain in job satisfaction in several ways:
1. Since 2010, we have shifted from historically high layoff rates to historically low layoff rates, which has increased the employee’s sense of job security.
2. When the unemployment rate dropped from ten percent in late 2009 to a low 4.4 percent in August 2017, the US labor market became a sellers’ market. Employees are now being offered more opportunities and have more confidence to pursue those opportunities. Growing shares of workers are voluntarily switching to other jobs and improving their job quality and satisfaction.
3. As it becomes harder to find qualified workers and retain existing ones, employers are gradually accelerating wage growth, offering higher wages and improving other job features—including monetary and nonmonetary benefits.
In 2017 the US labor market continued to tighten. By some measures, the US labor market is as tight as it was in 2007, just before the Great Recession. At 4.4 percent, the unemployment rate is below its natural rate. Measures of recruiting difficulties and the time needed to fill a position are well above 2007 levels. The voluntary quit rate is almost back to 2007 levels. Wage growth is still below where it was in 2007 but is gradually accelerating. Lay off rates are at historical lows. As a result, job satisfaction is likely to continue to improve in 2017.
Long-term demographic pressures are the main reason for the ongoing tightening of the US labor market. The massive retirement wave of baby boomers (born between 1946 and 1964) and weak growth in the working age population are holding down any growth in the US labor supply. Under such a dramatic demographic backdrop, modest employment growth is enough to continue tightening the labor market. In 2018, The Conference Board expects the US economy to continue growing at about two percent, meaning that employment is likely to grow fast enough to continue tightening the labor market. In such a scenario, by the end of 2018, the US labor market is likely to be historically tight with many industries and locations suffering from acute labor shortages. While such conditions are likely to hurt the bottom line of many businesses, they are likely to improve job satisfaction for workers.
With the retirement of baby boomers continuing through 2030, we expect that on average the US labor market will be quite tight until then. Recent political developments are not boding well for increasing immigration to the United States, which could have been a partial solution for the weak growth in labor supply.
These expected labor market conditions are likely to reverse some of the trends of recent decades that had caused the deterioration of job quality and job satisfaction. Wage growth is likely to increase. Job security is likely to improve, and perhaps even income inequality may start declining.
However, some of the structural trends in the US labor market make it very unlikely for job satisfaction to go back to what it was in the past. It’s hard to imagine an about-face reversal of trends affecting job satisfaction: the emphasis on maximizing shareholder value, declining unionization, outsourcing (both domestic and foreign), and market concentration will likely continue. Today’s US labor market is fundamentally very different from that of thirty years ago—in ways that all tend to lead to significantly reduced job satisfaction. In sum, the tightening US labor market is likely to raise job satisfaction in the coming years, but it would be surprising if in the foreseeable future we reach satisfaction levels of two to three decades ago.