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

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posted on 2009-05-08, 14:44 authored by Gaia Garino, Christopher Martin
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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Publisher

Dept. of Economics, University of Leicester

Available date

2009-05-08

Publisher version

http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp05-10.pdf

Book series

Discussion Papers in Economics;05/10

Language

en

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