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Switching Jobs Doesn’t Pay Off Like It Used To
By Martha C. White MONEY RESEARCH COLLECTIVE
ADP data shows the job-switch pay bump has nearly vanished as employers focus on retention.
Hoping to score a fat raise by landing a gig with a new employer? You might want to reset your expectations and stay put.
The conventional wisdom that you can bump your pay by switching jobs is breaking down: Payroll processing company ADP found in a report published last month that the so-called “pay premium” between how much more a worker can earn over the years if they get a new job versus if they stay with the same employer has fallen to a record low.
Historically, workers could realize bigger pay gains when they switched employers rather than moving up the corporate ladder with a single employer. The labor market shake-up and inflationary spiral in the immediate aftermath of the pandemic intensified this dynamic in a major way, ADP reported. But now, that trend has reversed.
As of January, the average annualized pay growth for people who did not change jobs was 4.5%, compared to 6.4% growth for people switching jobs. This comes out to a sub-2% wage premium for job-hoppers, down from a peak of 8.4% in April 2022.
ADP notes that the pay premium for job-hoppers varies by sector. The highest premium is in construction, with switching workers making an average 6.6% wage premium. In a couple of industries, pay premiums are close to nonexistent, and the information and leisure and hospitality sectors have seen an outright reversal. In other words, people sticking with their employers make out better.
Switchers face fewer job options, too
On the heels of ADP’s research, the Bureau of Labor Statistics reported on Friday that the economy lost 92,000 jobs in February. The sharp drop caught economists by surprise and rattled investors. Leisure and hospitality fared the worst; the sector had the largest contraction in February with 27,000 jobs lost. Job losses occurred in nearly every part of the economy.
Scott Helfstein, head of investment strategy at ETF provider Global X, explains that some of what the ADP figures reflect is a labor market that’s still shaking off the distortions created by the pandemic. “While job switchers were rewarded after the pandemic, that was something of a bubble,” he says via email.
For those who have jobs, the shrinking wage premium could actually be a good thing: Employers are investing more in retaining their top performers. Even as companies look for ways they can use AI to perform some job functions, Helfstein says, “They are paying top employees more.”
Helfstein even sounded a hopeful note about the disruptive nature of AI, pointing out that it could create opportunities in new fields for workers in sectors that have been on the front lines of AI-related job cuts, like technology.
“The skills needed for success in areas like information tech may now be increasingly valuable in other industries as [workers] explore ways to incorporate AI and automation technologies,” he says. “That creates opportunity as much as it threatens displacement.”
Workers also should keep in mind that even companies in sectors that have shed jobs want to retain their best performers, says Cory Stahle, economist for Indeed Hiring Lab. “Companies are prioritizing holding onto their existing workers,” he says — which they’re doing by boosting compensation.
The takeaway for job-seekers? “It doesn’t mean to get discouraged,” he says. “But it does mean you should be aware of it.”
Whether you’re hoping to land a new job or hold onto the one you have, Stahle says your best shot at success is “being ready to communicate your value” via your LinkedIn profile, resume and within your organization.
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A longtime Money contributor, Martha C. White has written about a variety of personal finance topics such as careers, credit cards, insurance, retirement and shopping, and has edited Money’s Best Credit Cards rankings. She also writes stories about business and the economy for NBC News and The New York Times.