Specific Capital and Labor Turnover

Abstract

Turnover characterizes a dynamic process in which job-worker matches are improved. The problem of searching for a preferred partner is formulated as a two-person game played by the worker and the employer involved in an existing match. The Nash noncooperative quit and dismissal rates exceed those associated with the joint wealth maximizing solution in the absence of a provision for compensation. The joint wealth maximizing turnover rates are independent of the wage paid, but the Nash cooperative rates are not. Recent empirical evidence is not inconsistent with the joint wealth maximizing hypothesis, although a discriminating test is needed.