Worker flows and establishment wage differentials : a breakdown of the relationship

We address the relation between establishment wage differentials and worker flows, i.e., the churning rate and the quit rate. Our analysis is based on a linked employer-employee dataset covering the French private sector from 2002 to 2005. Our estimations support the hypothesis that wage premium is an efficient human resource management tool to stabilize workers: churning rates are lower in high-paying firms due to lower quit rates. We further show that the relation is not linear, and it differs among skill groups and according to establishment size: it is strongest for low-wage levels, for low-skilled workers and in large establishments.