Decomposing the relationship between wage and churning

Abstract

Purpose – Applied research shows higher wages are associated with lower mobility at the establishment level. A usual interpretation is that high pay decreases labour turnover. We test if such relationship holds for every type of worker in every type of firm. Design/methodology/approach – Our analysis is based on a linked employer-employee panel dataset covering the French private sector from 2002 to 2005. We compute establishment wage effects and use them as regressors in labour mobility equations (for churning rate and quit rate). Using spline regression models enables to investigate for potential non linearities. Findings – We show that the relationship between churning rate and wage is greater in small firms and for low skilled workers. We further show that this relation is not linear: it is most intense in low paying establishments. The relationship between wages and quit rates has a strikingly similar pattern. This suggests that the link between churning and establishment wage effect is strongly related to quit decisions. Practical implications – A possible interpretation of our results is that high pay may be an effective stabilizing tool only for employers in small establishments, where wages are relatively low and for low skilled workers. Originality/value – Our paper is the first to decompose the relationship between wage and mobility. It shows the relationship is not linear and that it differs across establishment size and workers skill groups. It also shows quits play a role in this relationship.