Pay Structure and Turnover : Evidence from Brazilian Employer-Employee Matched Data

I use employer-employee matched panel data from Brazil to study the relationship between the firm's pay structure and worker mobility. Heterogeneity across firms in the pay structure is characterized by two components: an idiosyncratic firm-specific wage premium and a firm specific wage-tenure profile. I estimate these components through an extension of the AKM decomposition (Abowd, Kramarz and Margolis 1999) that controls for observable and unobservable worker-specific heterogeneity. I then use these measures to document several features of the relationship between pay structure and turnover at the firm level that are informative about firm's personnel management practices. First, firm-specific wage premia are negatively correlated with the slope of the tenure profile. Second, higher compensation, whether through higher wages or a steeper tenure profile, is associated with reduced turnover. Third, steeper tenure profiles reduce both layoffs and quits, but not hiring. Finally, to support the interpretation of these relationships as characterizing optimal policies of profit-maximizing firms, I show that these results are driven by private-sector firms. There is very little variation in pay structure across public sector employers