How Costly is Turnover? Evidence from Retail

• Published in: NBER Working Paper Series 2019-08, p.26179
• Format: Article
• Language: English
• Subjects: Behavior; Causality; Cost control; Economic theory; Employees; Employers; Employment; Productivity; Retailing industry; Teams; Workers; Workforce planning
• ISSN: 0898-2937
• DOI: 10.3386/w26179

Working Paper No. 26179 Identifying the causal effects of turnover on organizational productivity is challenging, due to data constraints and endogeneity issues. We address these challenges by using day-to-day variation in the composition and performance of small retail sales teams, and by exploiting an advance notice requirement for quits. We find robust and statistically significant productivity losses at four distinct times during the departure process: after the worker gives notice, before she departs, after she leaves, and after a new worker starts. We attribute the first two effects to a combination of recruitment activities by incumbent workers and reductions in morale, and the last two to short-staffing and on-boarding costs. Almost two thirds (63 percent) of these productivity losses occur before the departing worker leaves, and only 24 percent result from operating with an unfilled vacancy. Overall, we estimate that the costs of a ten percent increase in turnover are equivalent to a 0.6 percent wage increase; wage hikes will therefore pay for themselves (in turnover cost savings) only if the elasticity of quits to wages exceeds 16.8 in absolute value.