Working Paper: CEPR ID: DP2563
Authors: Gerard A. Pfann
Abstract: This paper develops a theoretical model of optimal quit behaviour for a worker who holds an option to quit but faces a fixed cost of quitting. A worker will accept the outside offer only if the net present value of the difference in expected future cash flows associated with the old and the new job exceeds the costs of quitting plus the value of keeping the option to quit open. The implications of the model are consistent with some empirical facts of quit behaviour that we observe in manufacturing data in the US and in plant level data in The Netherlands.
Keywords: downsizing; fixed costs; job mobility; timing; voluntary turnover
JEL Codes: J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| net present value of expected future cash flows from the new job (p) (J17) | decision to quit (J26) |
| costs associated with quitting (q) (J32) | decision to quit (J26) |
| expected future cash flows (p) (G19) | likelihood of quitting (J26) |
| higher uncertainty regarding future earnings (D89) | probability of quitting (J26) |
| current job's wage (w0) (J31) | net present value of expected future cash flows from the new job (p) (J17) |
| expected lifetime earnings of a new job (v0) (J17) | net present value of expected future cash flows from the new job (p) (J17) |