Staying in your ‘safe’ job could cost you $5700 a year
Opinion
In today’s uncertain economy, there is something comforting in having a safe job.
It sometimes feels like our headlines are inundated with news of mass lay-offs, claims that artificial intelligence is going to take your job, and recently, a risk of impending recession. So, it’s no surprise many see secure employment as a victory.
But what if I told you this could come at a cost? Research from e61 Institute finds that job switching is associated with pay increases 9 percentage points higher than staying in the same job. For the average worker, this amounts to $5700 per year.
This is because when your company hires externally, it has to attract talent and match market-level wages. When you stay, they only have to give you a small percentage pay bump, if at all.
You may be doing the same work as a new hire sitting next to you (or probably even more) but earning less simply because you have been there longer. Economists refer to this as a “loyalty tax”.
The job-switching effect is even bigger for younger workers. It is estimated those aged between 21 and 34 years old gain $7500 more per year from switching, compared to job stayers.
Whatever you do, don’t offer blind loyalty to an employer who sees it as a reason to pay you less.
What’s more, that difference compounds every year. If your salary jumps meaningfully when you switch roles, your future percentage pay rises start from that higher base. You earn a higher superannuation contribution. And when switching roles again, you may be able to argue you deserve a higher wage as you are already being compensated at a higher rate.
Over time, this could be the difference between buying a house in your 30s v your 40s. It could be the difference between retiring at 65 or at 70.
There is a second – less obvious – potential cost to staying in the same job: skills. In a rapidly changing labour market, your earning potential is closely tied to how your skills evolve.
Workers who move to new roles are more likely to expand their responsibilities and learn new things. Those who stay in the same role for a long time can find themselves highly specialised at a narrow set of tasks, which can often be very employer-specific.
With the rise of AI, this is more important than ever. Jobs and Skills Australia predicts that AI is more likely to augment work than simply replace it, so the demand for up-to-date digital literacy and human skills is rising.
Additionally, the cost of overstaying your employment isn’t just a problem for you; it’s a problem for our economy as a whole.
The Grattan Institute shows that job mobility has declined every year since the 1990s and is partially responsible for Australia’s weak productivity growth. In turn, The Australian Treasury argues that job switching promotes higher wage growth and helps the labour market adjust to structural change.
The recent ban on non-compete clauses, wage-fixing agreements, and no-poach agreements are a step in the right direction. However, we still need people to be willing to move jobs.
While feeling safe in a job is critical, somewhat paradoxically, the workers who are more willing to move are often the best protected against uncertainty. By regularly testing their market value they ensure their skills, salary, and experience stay aligned with demand.
Our own psychological biases can make it easy to overestimate the risk of leaving and underestimate the risk of staying. The costs of over-staying can creep in slowly and be difficult to detect.
On the other hand, there are many perfectly legitimate reasons to stay in a job. Maybe your role offers you the flexibility to care for your children. Maybe you really love your team. If you’re in line for a big promotion, that’s of course a good reason to stay put.
You should treat staying in a job like an active decision. Every six to 12 months, reflect on these factors and see if you’re happy. A good rule of thumb is that whenever your company formally reviews your performance, you should in turn privately review how you feel about working there.
It might be worth speaking to a recruiter or other people in your industry to see if you’re earning market-level wages. Beyond pay, reflect on whether your job brings you happiness, purpose, and trajectory. If not, it might be time to move.
Just beware that if you are perceived to be a serial job-switcher, it could negatively impact your ability to land your next role. An employer probably won’t jump at a candidate who has done five jobs in the last three years.
Ultimately, it’s a balancing act between holding on to a good job and not missing out on better opportunities. And whatever you do, don’t offer blind loyalty to an employer who sees it as a reason to pay you less.
Max Yong is a Teaching Fellow in personal finance at Harvard University. He previously taught personal finance at Melbourne University.