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Declining Job Security

By Robert G. Valletta


Although common belief and recent evidence point to a decline in $job security, # the academic literature to date has been noticeably silent regarding the behavioral underpinnings of declining job security. In this paper, I define job security in the context of implicit contracts designed to overcome incentive problems in the employment relationship. Contracts of this nature imply the possibility of inefficient separations in response to adverse shocks, and they generate predictions concerning the relationship between job security parameters&such as worker seniority, aggregate shocks, and sectoral economic conditions&and the probability of separations. To test these predictions, I use Panel Study of Income Dynamics (PSID) data for the period 1976-92, combined with tabulations from the March Current Population Surveys (CPS) for the same (and earlier) years. I use these data to estimate binomial and multinomial models of job separation decisions. The results are consistent with a decline over time in the incentives to maintain existing employment relationships. * I thank Randy O’Toole for indispensable research assistance, without implicating him for any mistakes. The opinions expressed in this paper do not necessarily represent the views of the Federal Reserve Bank of San Francisco or the Federal Reserve SystemDeclining Job Security I

Year: 1999
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