Quitting and Labor Turnover: Microeconomic Evidence and Macroeconomic Consequences

42 Pages Posted: 20 Apr 2016

See all articles by Tom Krebs

Tom Krebs

Syracuse University - Center for Policy Research

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Date Written: October 14,1998

Abstract

To prevent trained workers from quitting to open their own businesses, firms pay higher than market efficiency wages to reduce turnover. What is the impact of macroeconomic shocks and policy innovations, such as labor market reform, in an economy where this is of central importance? Combining microeconomic evidence with macroeconomic theory, Krebs and Maloney 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 from the 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.

This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Latin America and Caribbean Region - is part of a larger effort in the region to understand the functioning of developing country labor markets.

Keywords: Efficiency Wages, Employment, Labor Turnover, Macroeconomic Policy, Self-Employment

JEL Classification: E24, E60, J41, J63

Suggested Citation

Krebs, Tom and Maloney, William F., Quitting and Labor Turnover: Microeconomic Evidence and Macroeconomic Consequences (October 14,1998). World Bank Policy Research Working Paper No. 2068. Available at SSRN: https://ssrn.com/abstract=629106

Tom Krebs (Contact Author)

Syracuse University - Center for Policy Research ( email )

Syracuse, NY 13244
United States

William F. Maloney

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
United States
202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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