Distortions and policies when labor turnover is costly.Faculty Publications
AbstractThis paper uses a turnover model of efficiency wages that explicitly considers the microfoundations of the worker's choice to stay or quit. Here, there are two distortions. Employment and productivity are both too low to be optimal. Productivity is too low because turnover is too high. With a government budget constraint, policies that alleviate one distortion must aggravate the other. The results show that increasing productivity improves welfare even though it also leads to greater unemployment. Policies that increase productivity are wage- rate subsidies, hiring taxes, and minimum wage laws.
PublisherMohr Siebeck GmbH & Co. KG
Creative Commons LicenseCreative Commons Attribution-Noncommercial-No Derivative Works 4.0
Citation InformationCarter, T. J. (1993). Distortions and policies when labor turnover is costly. Journal of Institutional and Theoretical Economics (JITE), 149, 547-558.