2. For better not worse: Job quality and the decision to stay in the job

Job quality is central to worker well-being and is directly related to measures of firm performance such as employee turnover, productivity, and profitability. Evidence shows that dissatisfaction with pay, job security, and flexibility are important factors in causing people to quit their job. There is strong empirical evidence that as wages rise, quits fall, however quits also fall as other attractive features of jobs improve. Self-reported job satisfaction has long been found to be a good predictor of job mobility over and above the effect of wages (Freeman, 1978[1]; Clark, 2001[2]; Lévy-Garboua, Montmarquette and Simonnet, 2007[3]), but job satisfaction by itself is not very useful if you do not know what drives it.1

The OECD job quality framework covers three dimensions: earnings, quality of the working environment, and labour market security (Cazes, Hijzen and Saint-Martin, 2015[4]). The chapter focus primarily on earnings quality and quality of the working environment. Both the average level of earnings and the distribution of earnings are included due to their importance for individual and overall well-being. The quality of the working environment, captures non-pecuniary aspects of employment such as being able to do meaningful work, working flexibility, fulfilling ambitions, and opportunities for training and development.

The level of pay is an important aspect of job quality and plays a key role in determining job quits. New OECD evidence shows that workers are less likely to quit in firms with more generous wage-setting practices (Figure 2.1).2 Firm wage-setting practices may depend among other things on its performance, wage-setting power and personnel policies. It is measured empirically by wage premia (this represents a firm specific element of wage setting that is independent of the worker composition of the firm). On average across selected countries, the quit rate is about 50% higher in firms in the bottom quintile of the firm-wage premia distribution compared with firms in the top quintile of the wage premia distribution. Among mature workers (aged 50-59), the quit rate is 40% higher in firms in the bottom quintile compared to the top quintile of the wage premia distribution. However, workers in firms with less generous wage-setting practices are not only more likely to quit (separation rate), but they are also more likely to lose their job and become jobless as their jobs are less secure (separation rate out of employment). As a result, low-wage firms exhibit considerably lower job retention rates than their higher-wage counterparts.

While mature3 workers (aged 50-59) are much less likely to leave their firm for another firm compared to younger workers (Figure 2.1, Panel B), they are much more likely to exit the labour market altogether compared to younger workers (Figure 2.1, Panel C).

Pay relative to co-workers or other similar groups of workers can also affect turnover in addition to absolute pay (Card et al., 2012[6]). People who perceive their pay to be below what they regard as unfair are more likely to put in less effort or even quit (Akerlof, 1982[7]; Akerlof and Yellen, 1990[8]; D’Ambrosio, Clark and Barazzetta, 2018[9]). Wage inequality has risen in many OECD countries in recent decades, and in some countries such as the United States and the United Kingdom, median real wages have been stagnant for a decade or more, raising the prospect that interpersonal comparisons of pay might be more salient than ever before.

Self-reported job satisfaction is a powerful predictor of separations and quits even after taking wages into account (Clark, 2001[2]; Clark, Georgellis and Sanfey, 1998[10]). Self-reported job satisfaction data can be useful in complementing objective measures of job quality if workers are asked about their satisfaction with specific aspects of the work environment. It can also be used to place a “willingness-to-pay” or monetary value on different aspects of the work environment. In this way job satisfaction can be useful to get an indication of what objective components of jobs matter for well-being.

Using data from the United Kingdom and Australia it is possible to give indicative estimates of the monetary value of flexible working practices as a percentage of average annual income for men and women (Figure 2.2). Factors such as income, education, age, and marital status will also affect workers’ attitudes to flexible working but these and other factors are taken into account, so that as much as possible we are isolating the effect of a particular work practice on an individuals’ valuation. Respondents in the two surveys are asked a question of the type “which of the following arrangements are available at your workplace?”

For women in the United Kingdom the option to work at home on a regular basis is equivalent to just over 20% of the average annual salary, whereas for men this option is only worth about 7% of the average salary (Figure 2.2, Panel A). For women, being able to work a compressed week or annualised hours is also worth 22% of the average salary; for men this is worth just under 7%. The top panel also shows that on average zero hours contracts or on call contracts have a negative effect on job satisfaction. Panel A shows that women would be willing to pay up to 22% of their salary to avoid zero hour or on call contracts. These results suggest that employee oriented flexible working practices are valued highly, particularly by women in the United Kingdom and Australia. This has implications for women’s’ careers if the lack of flexibility leads them to exit the labour force.

In Australia, the option of having flexible start and finish times is worth in monetary terms about 48% of the average annual salary for women, and just under 30% for men (Figure 2.2, Panel B). The Australian survey asks questions about fewer flexible work practices compared to the United Kingdom survey; however, the Australian survey also asks about the availability of some family leave policies. This shows that for women, paid maternity leave can be valued at just under 30% of the average salary. For women having access to special leave for caring for family members can be valued at 24% of the average salary, and for men at just over 10%. These results, while indicative, give some sense of the value that workers place on different aspects of the working environment.

The value that employees place on work flexibility appears to have increased because of the COVID-19 pandemic. The 2022 AARP Global Employee Survey finds that workers are more likely to want flexibility on when and where they work (Figure 2.3, Panel A).4 There is more demand for flexibility in some countries than others, but this may partly reflect pre-pandemic differences in flexible working practices (Figure 2.3, Panel B). Survey evidence suggests that at least some of the recent rise in post-pandemic quits are because of workers looking for jobs that allow greater scope for remote work (Barrero, Bloom and Davis, 2021[11]), helping to push many employers to permanently change working arrangements.

Pre-pandemic evidence found that more flexible work arrangements can reduce employee turnover and improve worker well-being and productivity (Bloom et al., 2015[12]). In an experiment with a “results only” work environment, Best Buy, a large United States retailer found that by shifting the emphasis from being visible at a particular time to giving employees control over where and when they do their work, that staff turnover amongst employees exposed to the scheme fell by 46% eight months after implementation (Moen, Kelly and Hill, 2011[13]).

Older workers are more likely to work for longer if jobs are more flexible. In a survey of 3 000 American workers aged 55 and over, about 40% of respondents that were not working at the time of the survey, mostly in their 60s and 70s, said that they would be willing to work again if they had exactly the same conditions as in their previous job (Ameriks et al., 2017[14]). However, 60% reported that they would be willing to return to work with a flexible schedule. Furthermore, 20% of these workers would be willing to take more than a 20% hourly wage reduction to do so.

Uncertain hours (which also affect pay) are a key dimension of job insecurity, alongside the lack of sufficient hours. Unstable and unpredictable work schedules reduce job satisfaction and the likelihood that an employee will stay with the same employer (Boushey and Ansel, 2016[15]; Fugiel, 2022[16]). More and more workers are confronted with unpredictable hours, unstable schedules, and variations in days of work, typically without any input from the employee, this is particularly the case in low-paid sectors such as retail and hospitality, but also in higher-wage jobs in transport, construction and manufacturing.

Pre-pandemic reports of stress and burnout in several sectors – including health – shows that this is not a one-off consequence of the pandemic but an ongoing issue that needs to be dealt with in the interests of employee well-being. The OECD job quality framework uses the incidence of job strain as a measure of the quality of the working environment, where job strain is defined as jobs where workers face more job demands than the resources they have at their disposal (Cazes, Hijzen and Saint-Martin, 2015[4]). Scanlan and Still (2019[17]) use this framework to explore the relationship between job satisfaction, turnover intention and burnout in an Australian mental health service, finding that emotional demands, shift work, and work-home interference all contribute to increasing employees’ quit intentions. Willard-Grace et al., (2019[18]) find that burnout and low employee engagement is related to higher levels of turnover in a study of San Francisco health services. There is widespread evidence that intensification of work has increased in recent decades, a phenomena that appears widespread across occupations from nurses to aerospace workers, managers and IT workers (Green et al., 2022[19]; Hunt and Pickard, 2022[20]; Giménez-Nadal, Molina and Sevilla, 2022[21]; Eurofound, 2019[22]; Kelly and Moen, 2020[23]).

Discrimination and negative attitudes towards different age groups are obstacles to long and productive working lives which has an economic cost. In the United States this was estimated to be USD 850 billion in 2018 (AARP, 2020[24]). Age discrimination is still present in many modern workplaces and manifests itself in discrimination in hiring practices, firing practices, promotion decisions and opportunities for advancement, workplace inclusion, access to resources such as up-skilling and re-skilling. According to the International Social Survey Programme, 15% of respondents across 28 countries report to having been discriminated against with regard to their work within the last five years; for example, when applying for a job or not being considered for a promotion (OECD, 2020[25]).

Productivity growth is the main driving force of better wages and job quality in the long term. Job quality tends to be highest in companies with high-performance work practices, which rely on high pay, long-term relationships (security) and a high-quality work environment. Small firms struggle more often than large firms to provide good working conditions and tend to have less generous wage-setting practices. To some extent this reflects the fact that smaller firms are typically less productive and have less generous wage-setting practices. Although there is a strong overall relationship between firm wage-setting practices and retention, the relationship varies depending on the size of firms. The average retention rate is the highest in firms with over 250, but the wage setting policy is higher in firms with 10 to 49 and 50 to 249 employees (Figure 2.4). This suggests that other aspects of job quality also play an important role.

Firms that improve productivity raise pay in comparison with firms that do not raise productivity (Engbom, Moser and Sauermann, 2022[26]). Improving employee skills is a key way to improve productivity in low-wage firms (see Chapter 4). Minimum wages have also been shown to contribute to higher labour productivity (Riley and Rosazza Bondibene, 2017[27]; Coviello, Deserranno and Persico, 2022[28]).

Productivity growth is essential to support rising living standards, and while much of the firm wage-premia depends on business choices and performance, institutional arrangements such as collective bargaining, minimum wages and labour taxation can play a key role in ensuring that productivity gains are widely shared. A growing number of firms offer compensation packages that link pay to performance (Box 2.1). In retail, hospitality, and other consumer facing services, the “low road” practice of setting wages low and managing high turnover is all too common. Governments need to address the high incidence of low pay, income inequality, and often-stagnant wage growth to improve job quality and retention.

Minimum wage increases in many countries have raised the pay of workers at the bottom of the income distribution and have not substantially reduced employment or hours of work (Dube, 2019[29]).5 Minimum wages can also help reduce employee turnover (Brochu et al., 2013[30]; Dube, William Lester and Reich, 2016[31]) and reduce wage inequality (Autor, Manning and Smith, 2016[32]; Engbom and Moser, 2022[33]). Theoretically there is potential for minimum wages to have a negative effect on employment if they are set too high. On average across OECD countries minimum wages are set at around 50% of the median. Following a review of international evidence, Dube (2019[29]) argues that there is room for exploring a more ambitious minimum wage of between 60% to two-thirds of the median wage. Currently, 29 out of 38 OECD countries have statutory minimum wages. In the nine OECD countries without statutory minimum wages (Austria, Denmark, Finland, Iceland, Italy, Norway, Sweden, Switzerland and Costa Rica), a large part of the workforce is formally covered by wage floors specified in collective agreements.

While minimum wages can set a wage floor, collective bargaining can improve wages and conditions over and above this minimum. Apart from pay, collective agreements can often improve other aspects of job quality such as the design and implementation of occupational health programmes, management practices, intimidation and discrimination, and reskilling and training (OECD, 2019[34]). Collective bargaining can help ensure that workers’ requests for pay to increase with productivity are heard therefore preventing excessive turnover (Bryson and Forth, 2010[35]).

As an alternative to collective bargaining, wage boards can be used to target middle-income workers. These can set multiple minimum pay standards by sector and occupation in collaboration with business and worker representatives (Dube, 2020[36]). The Australian Modern Awards System contains elements of such a system, and a similar approach is in the process of being implemented in New Zealand in the form of the Fair Pay Agreement System (which is a hybrid of collective bargaining and wage boards).6

Better people management skills can reduce employee quit rates (Hoffman and Tadelis, 2021[38]; Friebel, Heinz and Zubanov, 2021[39]; Moscelli, Sayli and Mello, 2022[40]), as well as improve firm productivity (Bloom et al., 2019[41]). Hoffman and Tadelis (2021[38]) find that a manager’s interpersonal skills in relations with their subordinates have a very strong effect on reducing employee attrition. Further, positive human resource management practices, including career support, clear expectations, coaching, consultation, a positive attitude and trust have a substantial effect on reducing staff retention. Having autonomy over how work is done, participation in decision making, supportive supervision and positive interpersonal contact have also been shown to be strongly associated with self-reported job satisfaction (Bryson, Forth and Stokes, 2015[42]).

One mechanism through which better management can improve retention is through staff engagement. Staff engagement can be defined “as a blend of three existing concepts: job satisfaction, commitment to the organisation and extra-role behaviour, i.e. the discretionary effort to go beyond the job description” (Schaufeli, 2013[43]). In the English National Health Service (NHS), Moscelli et al. (2022[40]) find that better staff engagement improves the retention of nurses. They find that workplace culture, leadership and resources all have a positive effect on engagement, and one of the key predictors of engagement is the perception that managers involve employees in important decisions. Self-realisation at work, measured by the share of staff with opportunities to use their skills, also has a significant positive association with engagement. Pay and having a full-time job also play a role in explaining nurses’ engagement. Improving staff engagement also proved important in a related intervention to improve retention in the English NHS (Box 2.2).

Overall, evidence suggests that work-schedule flexibility improves employees’ views of their own work-life balance, and while flexibility will not work for all jobs, greater flexibility can improve job satisfaction and employee retention (Moen et al., 2016[45]). Surveys of employee attitudes show that a large proportion of people do not want to return to pre-pandemic working patterns, and that many workers prefer working from home at least part of the week (Barrero, Bloom and Davis, 2021[46]). Flexible work arrangements are effective in helping organisations respond to the potential loss of skills linked to the retirement of older employees (Ameriks et al., 2017[14]), yet evidence from the 2022 AARP Global Employee Survey shows that mature workers have much less flexibility in their jobs (such as being able to work from home or flexible hours) relative to younger workers in most countries in the sample (Figure 2.5).

There are both opportunities and challenges for businesses in implementing more flexible arrangements. The Forbes Human Resources Council highlight the need to focus on work results and deadlines rather than on the length of the working day (Forbes, 2021[47]). Forbes suggests that by entrusting employees with the freedom of a flexible schedule, they will work harder to maintain the trust of employers. Flexible working arrangements are also more likely to be successful when they are taken part of an organisations’ culture. McKinsey found that having the right policy in place was not enough if people were looked down on for taking time off (McKinsey, 2021[48]). Older workers also need to be sufficiently secure to request flexible work without damaging their occupational position. One way in which this can be supported is through ensuring that flexible working arrangements are used by senior staff (Smeaton and Parry, 2018[49]).

In addition to flexible working practices, government and employer policies such as parental leave and paid caregiving are also crucial to helping people reconcile work with family and care responsibilities. The high proportion of women with caring responsibilities in the labour market and unpaid care work carried out by older workers means that governments and employers need to do much more to help people balance work and caring responsibilities. Evidence from the 2022 AARP Global Employee Survey shows that mature workers have much less flexibility to care for children and dependent adults relative to younger workers, with the least flexibility in Finland, Germany, Japan and Spain (Figure 2.6). A recent American survey found 64% of workers who live with children under 18 are more likely to consider a new job with a hybrid working arrangement than compared to 49% of workers without children under 18 (Barrero, Bloom and Davis, 2021[11]). In many countries, paid leave for caring duties, childcare voucher systems, gradual return to work programmes for workers on maternity or paternity leave, and extended parental leave are used to help retain workers.

Almost all OECD countries offer some national paid parental leave policy. On average across OECD countries, mothers are entitled to just over 18 weeks of paid maternity leave around childbirth, with around 70% of wage replaced on average (Figure 2.7).7 The exception is the United States, the only OECD country to offer no statutory entitlement to paid leave on a national basis (although there are policies at state level). Providing paid family leave benefits at the state level in the United States has been shown to improve firm outcomes by helping them to recruit and retain highly qualified employees (Bennett et al., 2020[50]). Paid family leave policies in California, New Jersey and New York show that access to leave can support job stability for female partners of men who experience a negative shock to their health (Coile, Rossin-Slater and Su, 2022[51]). Paternity leave should also be expanded to improve the work-life balance of mothers and fathers (and other family types).8 This can help reduce the stress on mothers, allowing them to return to the workplace earlier (McKinsey, 2021[48]) (Box 2.3).

In the last decade, many OECD countries have raised the retirement age above 65 years of age to 67 and higher. Governments should encourage longer and more satisfying careers for those who are able to through more flexibility in work-retirement transitions, for example by promoting phased retirement, better balancing work and care and permitting a combination of pensions with work income. Canada, Denmark, Iceland, Norway, Portugal, Switzerland and the United States have maximum deferral ages for men of at least 70 (and 69 for women in the case of Switzerland) (OECD, 2017[56]). Countries should also restrict the use of publicly funded early-retirement schemes which encourage workers to leave employment while they are still in good health and able to work (OECD, 2019[57]). A range of policies have been implemented by OECD countries to extend flexible retirement options (Box 2.4).

The Singaporean Government is taking action to extend the working lives of older workers through its re-employment policy and job re-design grants. Rather than increase the retirement age, the Government’s re-employment policy aims to create the opportunity for employers and employees to think about how work may be re-designed to enable older workers to continue working, supported by a job re-design grant of up to 80% of the project costs or SGD 20 000, whichever is the lower, with an employer able to make multiple submissions.

A twin-track approach of engaging line managers and employees is likely to be more effective than diversity training as evidence shows how difficult it is to de-bias minds (Bohnet, 2016[61]). According to the 2020 AARP Global Employer Survey only 42% of employers offer their managers training on management practices for a multigenerational workforce, so there is scope to improve this across organisations. At the same time employee engagement and buy-in can be boosted through Employee Resource Groups (ERGs) (OECD, 2020[25]). ERGs are voluntary employee led groups which can promote accountability, engage members and increase contact among diverse groups. While evidence on their effectiveness is scarce, other studies on corporate diversity taskforces that share similarities with ERGs, show that intergroup contact effectively reduces prejudice among a broad range of minority groups including older people (Bertrand and Duflo, 2017[62]). Programmes led by governments and social partners can also work to reduce prejudice in the workplace (Box 2.5).


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← 1. For example a recent meta-analysis of 339 studies using data accumulated by Gallup across 49 industries in 73 countries found that higher employee well-being is associated with higher productivity and firm performance (Krekel, Ward and De Neve, 2019[64]). From studying the relationship across this large range of studies, they examine the relationship between employee satisfaction and four aspects of firm performance: customer loyalty, employee productivity, profitability, and employee turnover. They find a significant negative relationship between employee satisfaction and staff turnover. They also find that higher levels of employee satisfaction are associated with higher levels of customer loyalty, productivity and profitability. However, these results do not give any indication about what drives employee satisfaction, making it difficult to draw any policy conclusions.

← 2. Firm-wage setting practices are measured empirically by focusing on average firm wages after controlling for differences in workforce composition following Abowd, Kramarz and Margalis (1999[5]).

← 3. The terms “mature” and “older” are used interchangeably throughout this report.

← 4. This is consistent with other survey results for example from the United Kingdom showing that employees whose working from home expectations are not met are twice as likely to want to quit their employer (Understanding Society COVID-19 study), and in a global working from home survey 15% of respondents said that they would quit or look for a working from home job if forced back to the workplace in person full time (Aksoy et al., 2022[66]).

← 5. The self-employed have risen as a share of low paid employment in recent years; a group of workers who are not directly affected by minimum wages. One-way to include some self-employed would be to extend the minimum wage to self-employed people who do not have the power to set their own prices – this would cover some of the “gig economy” platforms such as Uber and Deliveroo who control the prices that are charged to customers (D’Arcy, 2017[65]). An alternative in some countries such as the United Kingdom is to enforce existing laws better – many self-employed people are in fact “workers” rather than “independent contractors” and therefore have the right to the minimum wage and other benefits.

← 6. This system will allow any union to initiate bargaining for a Fair Pay Agreement if represents at least 1 000 employees or 10% of the employees in the proposed coverage. The agreements will cover basic pay and other conditions.

← 7. Many empirical studies find that female labour outcomes improve following the implementation of maternity leave programmes, for example Rossin-Slater (2017[67]).

← 8. On average, OECD countries offer just under nine weeks of paid father-specific leave, either through paid paternity leave or paid father-specific parental or home care leave. In some countries such as Sweden and Norway, partners have dedicated use it or lose it time off.

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