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

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  • Gaia Garino

    ()

  • Christopher Martin

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.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 05/10.

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Date of creation: May 2005
Date of revision: May 2007
Handle: RePEc:lec:leecon:05/10

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Keywords: Labour Turnover; Turnover Costs; Optimal Turnover;

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Cited by:
  1. Sarah Brown & Gaia Garino & Christopher Martin, 2007. "Labour Turnover and Firm Performance," Working Papers, The University of Sheffield, Department of Economics 2007012, The University of Sheffield, Department of Economics, revised Sep 2007.
  2. Mamede, Ricardo, 2006. "Towards an integrated approach to industry dynamics and labour mobility," MPRA Paper 3994, University Library of Munich, Germany.

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