The impact of employee turnover and turnover volatility on labor productivity: a flexible non-linear approach

Abstract

This article intends to further unravel the relationship between employee turnover and organizational performance. We test a complex non-linear relationship between turnover and performance, integrating different theoretical views (i.e. theories on human and social capital, operational disruptions and organizational learning) and using polynomial regressions. Based on organizational routines theory, we also consider the role of turnover volatility, i.e. the turbulence in turnover across time. To this end, we make use of longitudinal data of Belgian firms over a period of 10 years (1999–2008). Our results confirm the complex non-linear relationship such that organizations’ labor productivity increases at low levels of turnover, reaches a peak and decreases afterwards in a negatively attenuated fashion. Moreover, turnover volatility is negatively associated with labor productivity, suggesting that organizations find it especially difficult to deal with strong and frequent changes in turnover across time. Finally, volatility also moderates the relationship between employee turnover and labor productivity. The higher turnover volatility, the less outspoken the positive results of small amounts of turnover. At high levels of turnover, firms with medium volatility suffer the most negative effects. Both research and practical implications of these findings are considered.