Job flows and worker turnover: Evidence from matched employer‑employee data from Ethiopia

Working paper Firms

This paper examines job and worker flows in the formal private sector of Ethiopia using matched employer-employee data. We find a very high worker turnover rate (38%) associated with a relatively lacklustre job growth. Nearly half of worker turnover is driven by firm-level job creation and destruction while the other half is due to excess turnover or churning.

A substantial part of hiring (separation) occurs among downsizing (growing) firms underscoring how worker mobility exceed job reallocation across firms. Churning is costly for firms and reduces subsequent employment growth. This effect is stronger among firms that rely more on long-term relationships with workers. Firm-level churning rises subsequent to rapid employment expansion but declines among firms that pay above average wages and benefits. At the worker-level, the probability of separation declines with potential labour market experience, tenure and wage after controlling for relevant firm characteristics.