Job-to-job transitions and the wages of Australian workers

Leading models of on-the-job search suggest that competition among firms for employed workers - reflected in higher job-to-job transition rates - is an important driver of real wages. Intuitively, workers are better placed to move or bargain for increases in wages, hours or promotions when they have more outside options, namely other employers who want to hire them. I test the predictions from this model in the Australian data. Higher job-to-job transition rates in Australian local labour markets are associated with higher wages growth, including for those who stay in their jobs. A 1 percentage point increase in the rate at which workers switch jobs is associated with a ½ percentage point increase in growth in average wages. This association holds after controlling for a range of cyclical influences, including the rate at which the unemployed find work, suggesting the relationship between job-to-job transition rates and wages growth runs deeper than both simply being higher in cyclically stronger labour markets. Further work on what drives variation in job-to-job transitions rates could help in better understanding the underlying drivers of this relationship.