Absorbing the Costs of Turnover

Abstract

This study looks at the relationship between labor productivity and employee turnover. I show that the average firm suffers a productivity loss of about 10 percent from employee turnover. Since strategies for increasing employee retention may be economically infeasible, organizational characteristics that affect turnover costs are important. I argue that slack resources may absorb productivity losses. This only appears to be the case for firms experiencing high turnover rates.

Keywords: Employee turnover, strategic human capital, labor productivity, slack resources, panel data

JEL Classification: M10, M12, M51, J6, D24