Does Worker Loyalty Pay? Evidence from Transition Economies

Abstract

Does worker loyalty benefit workers? While the preponderance of studies identify benefits to firms of worker loyalty, few investigate whether workers benefit. We address this question using data collected from over 10,880 employees in over 655 workplaces in six transition economies (Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Russia and Serbia), focusing on two specific aims. First, we document the nature of worker loyalty using three alternative measures, and use ordered probit regression analysis, clustering by firm, to investigate the link (1) between loyalty and expected rewards, identifying where differences between intrinsic and extrinsic rewards emerge, and (2) between loyalty and worker performance, using a composite measure constructed from three items which asked participants to evaluate their work in comparison to others doing a similar job. Second, we use regression analysis to identify the association between earnings and loyalty among participating workers in these six countries. Regarding the first specific aim, we find that, generally, loyalty is positively associated with expected rewards and positively associated with performance, as is true in developed market economies. We find little evidence that workplace tenure (seniority) is a good proxy for worker loyalty among participants in our study. Regarding the second specific aim, we find that loyalty is positively associated with earnings, and statistically significant in four countries. In three cases, the magnitude of the loyalty effect is equal to or greater than that associated with an additional year of experience. Based on our findings, we suggest strategies to pursue to instill and enhance worker loyalty.