Labour Turnover, Wage Structure, and Natural Unemployment

by Ekkehart Schlicht

Zeitschrift für die gesamte Staatswissenschaft 1978, 134(2), 337-364.

Abstract

A firm may reduce its turnover and the entailed turnover costs by raising wages. A rise in unemployment reduces turnover and turnover costs in a similar way. The interaction of these effects leads – in presence of perfectly flexible wages – to a stable equilibrium in the labor market which clears the market but accidentally. Unemployment increases with increases in labor mobility. Wage differentials arise between perfectly identical workers working in different firms that face different turnover costs.

Keywords: efficiency wages, Solow-condition, turnover

Journal of Economic Literature classification numbers:  J41, J31

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