Chapter 4: Turnover Flashcards
What are reasons for turnover?
- matching
- technical change
- organizational change
- hierarchical structure
When is turnover costly for both firms and employees?
When human capital is firm-specific
What are some retention strategies?
- increase compensation
- compensation tied to (long-run) firm performance
- treating key employees as partners
- non-monetary rewards
- early promotion
What are examples of non-monetary reward?
- benefits
- flexible hours
- new opportunities
How to reduce costs of turnover?
- non-compete agreements
- knowledge sharing by collaboration
- cross-training
- standardize job
- knowledge management
What is the problem of bidding for employees? (Raiding)
- current employer knows more about the productivity of its employees than the knowledge you have about their productivity in your firm
- to hire someone from another firm, you will need to be willing to pay more than the current employer is willing to pay
What is Winner’s Curse?
when the party who makes the winning bid for an item may have bid too much, therefore overestimating the value of the bid
When is Raiding worth it?
- employee matches better with another firm
- employee is undervalued at current firm
- something changed that reduced worker’s value at the current firm or increased it at other firms
- the current firm does not overvalue or overpay the worker
Who is targeted during layoffs?
Based on the gap between wage and productivity. Firm-specific human capital is key to this determination, and it ends up being the workers who have recently started with the firm and those who are nearing their retirement
Who is targeted for buyouts?
Anyone for whom the present value of wages exceeds the present value of output
What are the two buyout formulas for a worker to accept a buyout?
1) PV(A) + buyout > PV(W)
2) buyout > PV(W) - PV(A)
What is the profit buyout formula?
PV(W) - PV(K)
Concerning a buyout, what is the formula for when a firm would like the worker to leave?
PV(W) - PV(K) > 0
What is the formula for the max profitable buyout a firm can offer?
PV(W) - PV(K)
What are implementation plans for buyouts?
- window plans
- retirement bridges
- job placement services
