The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Growing Old Together: Firm Survival and Employee Turnover
Erwan Quintin and John J. Stevens

Abstract: Labor market outcomes such as turnover and earnings are correlated with employer characteristics, even after controlling for observable differences in worker characteristics. We argue that this systematic relationship constitutes strong evidence in favor of models where workers choose how much to invest in future productivity. Because employer characteristics are correlated with firm survival, returns to these investments vary across firm types. We describe a dynamic general equilibrium model where workers employed in firms more likely to survive choose to devote more time to productivity enhancing activities, and therefore have a steeper earnings-tenure profile. Our model also predicts that quit rates should be lower in firms more likely to survive, and should tend to fall during slow times, while job destruction rates should rise. These predictions, we argue, are borne out by the existing empirical evidence.

Keywords: Firm survival, firm size, employee turnover, firm specific human capital.

Full paper (294 KB PDF)

Home | FEDS | List of 2005 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: May 18, 2005