The Impact of Labour Turnover: Theory and Evidence from UK Micro-Data

Gaia Garino and Christopher Martin

No 05/10, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: We analyse the impact of labour turnover on profits. We extend the efficiency wage model of Salop (1979) by separating incumbent and newly hired workers in the production function. We show that an exogenous increase in the turnover rate can increase profits, but only where firms do not choose the wage. This effect of turnover varies across firms as it depends on turnover costs, the substitutability of incumbents and new hires and other factors. We test our model on UK cross-sectional establishment-level data. We find that our predictions are consistent with the data.

Keywords: Labour Turnover; Turnover Costs; Optimal Turnover (search for similar items in EconPapers)
JEL-codes: E3 F4 J21 J23 (search for similar items in EconPapers)
Date: 2005-05, Revised 2007-05
New Economics Papers: this item is included in nep-bec, nep-lab and nep-mac
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Citations: View citations in EconPapers (2)

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