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Quitting and labor turnover : microeconomic evidence and macroeconomic consequences

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  • Krebs, Tom
  • Maloney, William F.

Abstract

Combining microeconomic evidence with macroeconomic theory, the authors present an integrated approach to wage and employment determination in an economy where firms pay above market"efficiency wages"to prevent trained workers from quitting. The model offers predictions about the behavior of formal employment, labor turnover, and segmentation in response to formal sector productivity shocks (including economic growth and tax reductions), changes in the desirability of self-employment (formal sector tax rates), and the cost of training a new worker. They use panel data from Mexican labor surveys to estimate the quit function derived fromthe model and the results support their view that transitions from formal salaried work to informal self-employment are quits rather than fires. (Quitting is positively related to the mean self-employment income and the probability of being rehired and negatively related to the mean formal salaried wage.) They then use the parameters estimated from the quit function to calibrate the model economy and simulate the impacts of economic shocks and policy innovations and find the impact on employment, turnover, and segmentation to be substantial.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2068.

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Date of creation: 28 Feb 1999
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Handle: RePEc:wbk:wbrwps:2068

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Related research

Keywords: Environmental Economics&Policies; Public Health Promotion; Labor Policies; Economic Theory&Research; Labor Management and Relations; Health Monitoring&Evaluation; Banks&Banking Reform; Environmental Economics&Policies; Economic Theory&Research; Labor Management and Relations;

References

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  1. Phelps, Edmund S & Zoega, Gylfi, 1998. "Natural-Rate Theory and OECD Unemployment," Economic Journal, Royal Economic Society, vol. 108(448), pages 782-801, May.
  2. Hoon, Hian Teck & Phelps, Edmund S, 1992. "Macroeconomic Shocks in a Dynamized Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 82(4), pages 889-900, September.
  3. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  4. Jeremy I. Bulow & Lawrence H. Summers, 1985. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
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  6. Nijman, Theo & Verbeek, Marno & van Soest, Arthur, 1991. "The efficiency of rotating-panel designs in an analysis-of-variance model," Journal of Econometrics, Elsevier, vol. 49(3), pages 373-399, September.
  7. Maloney, William F. & Pontual Ribeiro, Eduardo, 1999. "Efficiency wage and union effects in labor demand and wage structure in Mexico - An application of quantile analysis," Policy Research Working Paper Series 2131, The World Bank.
  8. Danthine, Jean-Pierre & Donaldson, John B., 1990. "Efficiency wages and the business cycle puzzle," European Economic Review, Elsevier, vol. 34(7), pages 1275-1301, November.
  9. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  10. Campbell, Carl M, III, 1993. "Do Firms Pay Efficiency Wages? Evidence with Data at the Firm Level," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 442-70, July.
  11. Pencavel, John H, 1972. "Wages, Specific Training, and Labor Turnover in US Manufacturing Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 53-64, February.
  12. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
  13. G. S. Maddala, 1987. "Limited Dependent Variable Models Using Panel Data," Journal of Human Resources, University of Wisconsin Press, vol. 22(3), pages 307-338.
  14. Daula, Thomas & Moffitt, Robert, 1995. "Estimating Dynamic Models of Quit Behavior: The Case of Military Reenlistment," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 499-523, July.
  15. Kimball, Miles S, 1994. "Labor-Market Dynamics When Unemployment is a Worker Discipline Device," American Economic Review, American Economic Association, vol. 84(4), pages 1045-59, September.
  16. Richard Rogerson, 1997. "Theory Ahead of Language in the Economics of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 73-92, Winter.
  17. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  18. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-18, May.
  20. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  21. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Working Papers 1906, National Bureau of Economic Research, Inc.
  22. Michael Woodford, 1994. "Structural Slumps," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1784-1815, December.
  23. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March.
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Cited by:
  1. Satchi, Mathan & Temple, Jonathan, 2006. "Growth and Labour Markets in Developing Countries," CEPR Discussion Papers 5515, C.E.P.R. Discussion Papers.
  2. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
  3. Maloney, William F., 1999. "Self-employment and labor turnover - cross-country evidence," Policy Research Working Paper Series 2102, The World Bank.

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