As Wages Keep Rising, So Does Employee Turnover

Pile of Money
Photograph by Getty Images/Ingram Publishing

Want proof that the job market just keeps getting better (for employees and job seekers, anyway)? Full-time employees ages 25 to 34 got an average 10% pay hike if they changed jobs in the first quarter of this year, up from 8.3% in the last three months of 2015, according to the latest quarterly Workforce Vitality Report from ADP Research Institute and Moody’s Analytics. Older job switchers didn’t do too badly, either. People ages 35 to 54 who moved to a different job saw an average pay increase of almost 5%, versus just over 3% in last year’s fourth quarter.

At the same time, employers in some industries paid markedly more to keep the most in-demand talent from leaving, most noticeably among younger Millennials and Gen Z. Consider: While all U.S. employees who stayed put in the first three months of 2016 saw an average raise that works out to 4.6% annually, the 24-and-younger age group almost doubled that, at 9.1%. For information technology employees of all ages, staying in the same job was worth an annualized average raise of 7.4%. “We saw significant acceleration in IT wages, as employers tried to retain them by paying them more,” says Ahu Yildirmaz, chief economist of ADP Research Institute. “In general, the higher the skill level, the bigger the increase.”

But paying people more goes only so far, it seems. Despite earning the biggest premium for sticking around, ADP found that the 24-and-under crowd’s turnover rate exceeded 50% in the first quarter. The industry with the most turnover was leisure and hospitality, where 45.4% of workers of all ages changed jobs, and where job switchers’ pay in this year’s first quarter went up 5.7% — a big improvement over 4.2% in last year’s fourth quarter, partly due to the new $15 minimum wage in some parts of the U.S.

Yildirmaz notes that a stronger labor market means we may be hitting a turning point in the recovery, where labor force participation will finally start rising in response to the growth in wages.

“These high rates of turnover are, of course, mostly good for employees, who are seeing many more opportunities and better pay,” she adds. “But people’s willingness to change jobs also means employers have a wider talent pool to draw from. So it’s not entirely bad for companies, either.”

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