The effects of workforce composition, labor turnover, and the qualities of entering and exiting workers on productivity growth

This study identifies and analyzes the effects of firms’ workforce composition, labor turnover, and the qualities of entering and exiting employees on consequent changes in their productivity. Using register data provided by Statistics Netherlands, we examine the productivity dynamics of Dutch manufacturing firms between the years 2002 and 2005. The regression results illustrate that changes in firm productivity are not only determined by the composition of the firm’s current workforce and the degree of labor turnover, but also by the characteristics of the workers who enter and exit the firm. Firms benefit from the inflow of employees previously employed with other firms in the same industry, and with highly productive firms, whereas the inflow of workers from non-employment has a negative effect on their new employers’ productivity growth. Furthermore, the outflow of workers into non-employment, and to highly productive firms positively affects their old employers’ productivity growth, while the exit of workers who leave for firms in the same industry, and of those who simultaneously relocate (across long distances) has a negative effect.