EBRI Notes

Employee Tenure, 2006

Apr 17, 2007 12  pages


Perception vs. reality: A widely held belief about past generations of American workers was that typical workers held career jobs, staying with the same employer for most of their working years. However, the data on employee tenure—the amount of time an individual has been with his or her current employer—show that career jobs never existed for most workers and have continued not to exist for most workers.

Overall tenure unchanged: The median tenure for all wage and salary workers age 25 or older was virtually unchanged from 1983 (5.0 years) to 2006 (4.9 years). However, the median tenure for male wage and salary workers declined from 5.9 years in 1983 to 5.0 years in 2006. In contrast, the median tenure for female wage and salary workers increased from 4.2 years in 1983 to 4.8 years in 2006. Consequently, the increase in the median tenure of female workers offset much of the decline in the median tenure of male workers, leaving the overall level essentially unchanged.

Public- vs. private-sectors: The difference between private-sector and public-sector workers’ tenure distribution is quite striking. Among all wage and salary workers age 20 or older, the median tenure level held steady at 4.0 years or slightly more from 1983 to 2006. The median tenure for private-sector workers’ also held steady over that period and was 3.9 years in 2006, but for public-sector workers it increased from 6.0 years in 1983 to 7.0 years in 2006. Over this two-decade period, median job tenure in the public sector increased significantly relative to the private sector, and currently is about 80 percent higher. Consequently, public-sector employers are facing the retirement of a significant number of their most experienced workers.

Policy implications: This persistence of job changing has important implications for a worker’s potential income in retirement:

--> Defined benefit pensions—Since most “traditional” defined benefità pensions are based on a formula using tenure and average salary, workers who frequently change jobs may receive little or no pension benefit. Compounding the issue of short tenure is the fact that fewer private-sector employers are sponsoring “traditional” pensions, a trend that will further reduce the number of current workers likely to receive a pension benefit.

--> Benefit preservation—A worker who changes jobs must decide what to doà with any retirement plan assets he or she has accumulated, a situation that has become more prevalent with the growth in plans that allow a lump-sum distribution. If employees do not retain these assets in some type of savings vehicle for retirement, they may forgo an important source of supplemental income to their Social Security benefits or be forced to remain in the work force.

--> Public policy—Enrollments in means-tested welfare programs couldà increase significantly if large numbers of retirees prematurely exhaust their own savings reserves. Also, the number of experienced public-sector employees will drop during the period when the social programs are about to face tremendous increase in enrollment, so the public sector must work to retain experienced workers or develop more workers to replace those nearing retirement.