The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. The Role of Job Turnover in the Low-Wage Labor Market . Consequences of Turnover


What are the consequences of turnover for the firm, for the worker, and for the economy? They can be huge.  Job loss has been valued at $76 billion at its peak in 1991 — by estimating the value of lost earnings for the worker and multiplying by the number of workers experiencing job loss — although, as noted, some of this loss may be efficient for the firm and the overall economy.(24)

Effect on Firms

The discussion above suggests that firms choose the optimal amount of job turnover, and consequently that there should be no impact on firm survival.  Empirical work, however, suggests that employers with high turnover rates are less likely to survive — possibly because the entrepreneur was not omniscient.(25)  Quite apart from the survival issue, however, the consequences of a firm's decision to have high turnover are that it is less likely to invest in human capital and training, there will be less worker-to-worker transfer of firm-specific knowledge, and it is less likely to offer fringe benefits, including health insurance.

Effect on Workers

On the worker side, for some workers — particularly young men — voluntary job mobility increases earnings and earnings growth.  Job changing can account for one-third of the increase in real wages in the first 10 years in the labor market.(26)  However, the effects of job change are fundamentally different for less-skilled workers — affecting work time, skills, wage levels, wage growth, and fringe benefits.

Unskilled workers suffer longer subsequent spells of unemployment after a job change and consequently lower annual earnings.  The lost work time is compounded by lost skills, since long spells of unemployment, even for skilled workers, lead to a depreciation of skills pushing previously high-wage workers into the low-wage, unskilled category.(27)  If the source of the turnover is job loss, workers have lower employment probabilities, higher probabilities of part-time work and lower earnings, and that these costs are higher for the least-educated workers.(28)  Earnings losses from displacement are quite large and persistent;(29) estimates range from 10 to 25 percent several years after the displacement.  The effect on the growth of wage, as well as wage levels can be important, too.  Another effect of higher turnover probability is reduced training, which results in flatter earnings.(30)  The effect of being laid off can also stigmatize a worker as a "lemon."(31)  Finally, there is some evidence that new jobs have fewer benefits, such as health insurance and other fringe benefits.(32)