Occupation and Industrial Mobility in the United States 1969-93

Abstract

Using the Panel Study of Income Dynamics, we investigate occupational and industrial mobility of individuals over the 1969-80 and 1981-93 periods in the United States. We find that workers changed both occupations and industries more frequently in the later period. For example, occupational mobility for men ranged from 15 to 20 percent per year during the first period and from 20 to 25 percent per year over the second. We also find that, for men, occupational and industrial changes are associated with lower earnings, though this effect has lessened somewhat over time, while for women the results are mixed. Our results also indicate that older and less educated workers are less likely to shift occupation or industry, as are better paid men but not better paid women.

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Working Paper No. 416
OCCUPATIONAL AND INDUSTRIAL MOBILITY
IN THE UNITED STATES 1969–93*
by
Eric Parrado
Central Bank of Chile
Asena Caner
The Levy Economics Institute
Edward Wolff
New York University, The Levy Economics Institute, and NBER
January 2005
*We would like to gratefully acknowledge the financial support of the C.V. Starr Center for Applied
Economics at NYU and the Russell Sage Foundation. Correspondence to: Department of Economics,
New York University, 269 Mercer Street, 7th floor, New York, NY 10003. E-mails:
eparrado@bcentral.cl, caner@levy.org, and edward.wolff@nyu.edu.
The Levy Economics Institute Working Paper Collection presents research in progress by
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Copyright © The Levy Economics Institute 2005 All rights reserved.

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Abstract

Using the Panel Study of Income Dynamics, we investigate occupational and industrial
mobility of individuals over the 1969–1980 and 1981–1993 periods in the U.S. We find that
workers changed both occupations and industries more frequently in the later period. For
example, occupational mobility for men ranged from 15 to 20 percent per year during the
first period and from 20 to 25 percent per year over the second. We also find that, for men,
occupational and industrial changes are associated with lower earnings, though this effect has
lessened somewhat over time, while for women the results are mixed. Our results also
indicate that older and less educated workers are less likely to shift occupation or industry, as
are better paid men but not better paid women.

JEL classification: J24, J31, J62.
Keywords: Occupation, Industry, Mobility, and Earnings.

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I. INTRODUCTION

The U.S. economy has witnessed substantial structural change over the last three decades.
First, employment has shifted from goods-producing industries to services. Second, since the
1970s, a rapid increase in the introduction of new information-based technologies has
occurred. Third, this has been accompanied by substantial adjustments in operations and
organizational re-structuring of firms. Fourth, concomitant with these changes the economy
faces increasing competition from imports and greater orientation toward exports.
One indicator of the degree of structural change is the shift in the (gross) composition
of employment both among occupations and among industries. Using the 1970, 1980, and
1990 U.S. Census of Population Public use Samples, total employment in each of those years
is composed by 267 occupations and 64 industries.1 Using the Duncan and Duncan index (the
absolute values of the change in the percentage of employment in each category summed
across all occupations or all industries), we find evidence of rising turbulence in the labor
market in the 1980s relative to the 1970s. The Duncan and Duncan index increased from 20.1
for the 1970s to 26.3 for the 1980s on the basis of employment by occupation and from 10.6
to 12.4 on the basis of employment by industry.
A popular argument is that with the shift to services, corporate restructuring,
downsizing, and outsourcing, job shifts have resulted in lower wages for displaced workers.
The anecdotal example is that high wage manufacturing workers have become “hamburger
flippers” in fast-food establishments.2
In this paper, we study whether the increased change in employment composition that
characterized the 1980s relative to the 1970s was also accompanied by greater change in
terms of both occupation and industry of employment on the micro level. Moreover, we are
also interested in whether job changes are associated with earnings losses and whether this

1 See Wolff (1996) for details on the classification schemes.
2 For a review on displaced workers see Fallick (1996). His main conclusion is consistent with the
view that earning losses of displaced workers are large and persistent. Carrington (1993), in
particular, finds that wage losses are much larger for displaced workers who switch industries.

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has become more likely over time. To study these issues, we draw on data from the Panel
Study of Income Dynamics.
Previous research on labor mobility has focused primarily on mobility between jobs
(employers/firms) and on the relationship between job seniority and earnings and worker-
firm matching. Relatively few studies have investigated occupational and industrial mobility.
Furthermore, this literature has focused mainly on occupational choice and occupational
attainment. Models of occupational choice have concentrated on new entrants to the labor
markets in which education and family antecedents play a key role. Such studies include
Robertson and Symons (1990), Orazem and Mattila (1986), Shaw (1986), Miller (1984), and
Rosen (1972). These studies argue that the intensity of human capital investment in
occupational skills varies across occupations and individuals, and their results generally show
that individuals do appear to change occupations to maximize the present value of their
investment.
However, there are some recent exceptions that consider the determinants of
occupational and industrial changes. Sicherman and Galor (1990) analyze theoretically and
empirically occupational mobility in the U.S. by focusing on individual careers. They
conclude that education helps to increase the probability of occupational upgrading. Harper
(1995) focuses on occupational quits in Britain as opposed to occupational upgrading. He
finds, as we do, that young and more educated individuals are more likely to change
occupations.
Our main focus here is to investigate job changes between occupations and industries
over time and by gender.3 Our main findings are that workers changed both occupation and
industry of employment more frequently in the 1981–1993 period than in the 1969–1980
period and that occupational and industrial changes lead to reduced earnings but the effect
has lessened over time instead of increasing. We also find that men tended to change
occupation and/or industry more frequently than women did. Furthermore, male workers who
earn more are less likely to change occupation or industry, whereas women who earn more
have a higher tendency to change occupations and industry over time. Finally, younger and

3 In the study we select a sample of men (heads of households in the PSID) and women (heads of
households and wives in the PSID) with continuous work histories.

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more educated workers change occupations and industry more frequently and this tendency
has risen over time.
A related concern of our paper is the relationship between job tenure and
occupational and industry switching. Theoretical and empirical studies of wage
determination growing out of job-matching models have established that job changes slow
down over time with job tenure.4 These models deduce a positive correlation between wages
and job tenure even if wages do not grow as seniority increases. This is explained if match
quality is job specific; in other words, individuals are less likely to quit and less likely to be
laid off or fired as job seniority increases. Thus, job tenure and wages are positively
associated with one another even with no increase in wage offers. Specifically, the
disturbance term in the basic wage equation is positively correlated with job tenure. As
Abraham and Farber (1987) point out, this may be explained by the correlation of tenure with
an omitted variable representing the quality of the worker-job or worker-employer match.
Similarly, human capital models (for example, Becker, 1962) predict a negative
relation between job mobility and tenure. Borjas (1981) and Mincer and Jovanovic (1981)
analyze the relationships among job tenure, wages, and inter-firm labor mobility that depend
on investment in job specific human capital. They find a strong association between job
tenure and wages, a result they attribute to the firm-specific component of wages rising over
time within the firm. In contrast with these results, Neal (1995), using the Displaced Worker
Surveys (DWS),5 shows that workers receive compensation for skills that are specific to their
industry rather than completely general or firm-specific. Similarly, Parent (2000) and Neal
(1999), using the National Longitudinal Survey of Youth (NLSY),6 show that industry-
specific human capital (rather than firm-specific) is what matter most for the workers’ wage
profile. This would suggest that the view that job matching is not only simply the process of

4 See Jovanovic (1979) for a formal model of job matching and Light and McGarry (1998), Garen
(1989), Abraham and Farber (1987), and Altonji and Shakotko (1987) for empirical tests of the job-
matching model.
5 In January of 1984, 1986, 1988, and 1990, the monthly Current Population Survey included a
supplement with information from workers who had previously suffered a job displacement.
6 Each individual work history covers the time period January 1978—December 1991.