Worker churning and firms' wage policies

Abstract

PurposeThe purpose of this paper is to provide empirical evidence of a causal nature about the relationship between wages and churning (“excessive” worker turnover).Design/methodology/approachMatched employer‐employee panel data from Portugal, covering the period 1986‐2000 are used in the study. Econometric methods are also used, including random effects tobit models, fixed effects and instrumental variables.FindingsUnlike in previous research (which typically does not consider causal relationships), the paper presents evidence that wages do not necessarily decrease the amount of churning. If employers are forced to increase pay, they may respond by hiring different workers. Detailed evidence about the nature of job and worker flows and churning levels across industries is presented.Research limitations/implicationsFuture research should examine the paths of workers whose wages are affected by collective bargaining.Practical implicationsThe paper provides additional evidence that effort may not be particularly sensitive to wages in some industries/occupations. The should be a better understanding of role of wages in personnel policies.Originality/valueThis paper is probably the first that seeks to examine the causal relationship between wages and churning. The results will be of interest to labour economists and human resource management experts.