Separating the Costs and Benefits of Employee Turnover: A Theory‐Driven Method and Applications

ABSTRACT

Employee turnover is costly, but it may also benefit performance through improving job‐worker match quality. Existing studies estimate only the net turnover‐performance relationship, ignoring benefits and biasing cost estimates. We develop a theory‐driven method that separately identifies operational costs and match‐quality benefits of turnover using commonly available workplace data. We link our structural model to the quadratic specification widely used in applied work and provide implementation code and detailed user guidance. Two applications show near‐zero net result when benefits offset costs in low‐skill, high‐churn settings, but high costs and no benefits when skilled and carefully selected workers are lost.