Employer Size and Labor Turnover

By Todd L. Idson

Columbia University

First Verson, April 1994
Second Version, February 1995

This work has benefited from discussions with Joseph Altonji, David Bloom, Charles Brown, Raymond Fishe, Sherry Glied, A.G. Holtmann, Jacob Mincer, James Rebitzer, Philip Robins, two anonymous referees, seminar participants at Columbia University and the University of Texas, and especially B. Bundle.


This paper inquires into the causes of higher tenure, and lower turnover, for workers at large firms. The hypothesis is advanced, and empirically evaluated, that long-term employment relationships in large firms stem from (1) the greater capacity of la rge employers to provide job opportunities within the enterprise and (2) the power probability of business failure facing large producers. In addition to directly lowering turnover, these factors act to raise the expected returns from on-the-job training as the expected duration of the employment relationship increases. As a result, large firms will investment in higher levels of on-the-job training that in turn inhibits turnover. Mobility is further reduced by large firms hiring employees with lower mobi lity tendencies and paying mobility-inhibiting wage premia and fringe benefits in order to protect their training investments.

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