Three Elements of Personnel Policy: Worker Flows, Retention and Pay

Abstract

This paper describes how personnel policies vary between establishments with respect to pay, tenure and worker flows. In particular we have analysed to what extent higher pay is related to higher or lower turnover among the work force and more or less seniority. Can higher pay be considered a compensation for a higher turnover among the work force? If the workforce is more stable, can the employer pay less? Various theories have different predictions for the signs. Before we can answer these questions, we will have to control for observed and unobserved wage, turnover and tenure effects at the individual and the establishment level. According to observables there does not always exist a direct correspondence between high-paying, long-tenured and expanding establishments. However, correlating unobservable establishment effects, some clear patterns do emerge. Tenure is negatively related to all worker flows except separations and stays. More hires are correlated with higher wage levels and higher wage growth. Expanding establishments have better wage prospects. Finally, tenure and wage regressions indicate higher tenure is related to better pay but worse pay prospects. We find a positive relation between wage levels and wage growth.

JEL Classification: J3, J6, L1, L2