The Payoffs of Higher Pay

• This past January 2021, The Wall Street Journal highlighted a working paper by Harvard University doctoral students Natalia Emanuel and Emma Harrington that examined the impact of wages on productivity and retention among hourly employees at a Fortune 500 online retailer.
• The paper, entitled "The Payoffs of Higher Pay: Elasticities of Productivity and Labor Supply with Respect to Wages," concluded that a $1 pay increase in 2019 reduced the "quit rate" among hourly warehouse workers at the company by 19%.
• Similarly, incremental pay increases among the organizations' customer service representatives led to meaningful turnover improvements among this cohort.

Why Do Employees Stay?

• A March 2017 analysis published in the Harvard Business Review also found that incremental pay increases had a substantial, quantifiable impact on employee retention.
• Specifically, Glassdoor Chief Economist Dr. Andrew Chamberlain revealed his finding that a "10% higher base pay is associated with a 1.5-percentage-point increase in the likelihood that workers will stay at their current company the next time they move to a new role, a statistically significant link."

How Amazon’s Higher Wages Could Increase Productivity

• A separate October 2018 discussion piece published in the Harvard Business Review pointed more qualitatively to the relationship between increasing wages and increasing employee retention.
• The paper asserted that the "intuition is straightforward" on the relationship between these two factors; specifically "higher wages makes a job more desirable."
• Particularly in cases where small wage increases are above the market rate, they result in "workings having more to lose" by leaving or risking termination.

Analyzing the Aftermath of a Compensation Reduction

• Meanwhile, The Wall Street Journal referenced a forthcoming paper in Management Science that considers the negative impacts of employee pay reductions on turnover.
• Entitled "Analyzing the Aftermath of a Compensation Reduction," a group of researchers out of Harvard University, Michigan State University and the University of Utah found that "employees who received pay cuts were more likely to leave the company."
• Moreover, the increase in turnover due to pay reductions was particularly acute among the most productive employees.

More Dated Research/Studies

• A December 2004 paper published in the Journal of Industrial Relations (link here) found that implementing slightly higher, living wages at San Francisco's airport reduced employee turnover by 33%. Specifically, "turnover fell by an average of 34% among all surveyed firms and 60% among firms that experienced average wage increases of 10% or more. The greatest reduction in turnover occurred among airport-security screeners, from 94.7% a year in April 2000 to 18.7% fifteen months later, an 80% decrease. Cabin-cleaning firms reported a 44% reduction in turnover, and ramp workers a 25% reduction. "
• A separate 2005 analysis (link here) of low-wage workers in Lost Angeles who similarly received living-wage increases found that their employers enjoyed turnover rates of 32%, compared with 49% for companies that did not implement living-wage pay adjustments.
• Meanwhile, current Federal Reserve chairwoman Janet Yellen is cited by The Wall Street Journal, among others, for her body of research that indicates that increasing wages leads to lower employee turnover.