Reference wages and turnover intentions: evidence from linked employer-employee data

ABSTRACT

This research note analyzes the nexus between workers’ turnover intentions and workers’ own wages, internal and external reference wages. Worker and establishment surveys are linked with administrative social security data for all workers in surveyed establishments. Approximately half a million worker-year observations are used to predict conditional internal and external reference wages. Results show that higher external and internal reference wages are correlated with higher turnover intentions. Thus, external reference wages seem to serve as outside options and higher reference wages of co-workers seem rather to reduce own social status than to signal better future prospects at the current employer.

KEYWORDS:

• Income comparison
• signal
• status
• turnover
• linked employer-employee data

JEL CLASSIFICATION:

• J31
• J63
• M52

Acknowledgments

We thank participants of the 2020 Annual Meeting of the American Economic Association in San Diego, the Workshop in “Assessing the Impact of Human Resource Management Practices” 2017 in Nurnberg, the Workshop in Management Research 2017 in Wuppertal, department seminar at LUISS university Rome, as well as Andrew Clark, Stefan Schneck, Susanne Steffes, Gesine Stephan, and Knut Gerlach for their comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/13504851.2022.2086680

Notes

¹ Note that it does not matter for the estimated coefficients and standard errors of the references wage variables, if we regress turnover intentions on the internal and external reference wages or on their gaps to the own wage. Because we control for the absolute own wage in the regressions, the absolute reference wages reflect the gaps to the absolute own wage in a ceteris paribus perspective. For example, a one unit increase of the absolute reference wage increases the gap by one unit, holding the absolute own wage constant. Formally, we estimate equation (1) and equation (2) would be the specification with gaps, which result in the same coefficients b and c for the reference wage variables. Note that workers’ own wages serve rather as a control variable in our setting and that we are interested in the reference wage variables.

(1) $\mathrm{T}\mathrm{I}=\mathrm{a}{ }^{\ast }\mathrm{W}\mathrm{O}\mathrm{W}\mathrm{N}+\mathrm{b}{ }^{\ast }\mathrm{W}\mathrm{R}\mathrm{E}\mathrm{F}\mathrm{I}\mathrm{N}\mathrm{T}+\mathrm{c}{ }^{\ast }\mathrm{W}\mathrm{R}\mathrm{E}\mathrm{F}\mathrm{E}\mathrm{X}\mathrm{T}$(1)

(2) $\mathrm{T}\mathrm{I}=\mathrm{a}{ }^{\ast }\mathrm{W}\mathrm{O}\mathrm{W}\mathrm{N}+\mathrm{b}{ }^{\ast }\left(\mathrm{W}\mathrm{R}\mathrm{E}\mathrm{F}\mathrm{I}\mathrm{N}\mathrm{T}\text{-}\mathrm{W}\mathrm{O}\mathrm{W}\mathrm{N}\right)+\mathrm{c}{ }^{\ast }\left(\mathrm{W}\mathrm{R}\mathrm{E}\mathrm{F}\mathrm{E}\mathrm{X}\mathrm{T}\text{-}\mathrm{W}\mathrm{O}\mathrm{W}\mathrm{N}\right)=\left(\mathrm{a}\text{-}\mathrm{b}\text{-}\mathrm{c}\right){ }^{\ast }\mathrm{W}\mathrm{O}\mathrm{W}\mathrm{N}+\mathrm{b}{ }^{\ast }\mathrm{W}\mathrm{R}\mathrm{E}\mathrm{F}\mathrm{I}\mathrm{N}\mathrm{T}+\mathrm{c}{ }^{\ast }\mathrm{W}\mathrm{R}\mathrm{E}\mathrm{F}\mathrm{E}\mathrm{X}\mathrm{T}$(2)

Additional information

Funding

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.