Training and Turnover in the Evolution of Organizations

An organization's decision whether or not to train its workers affects the overall economy, even if the firm does not factor the economy into its decision. If all firms within an industry fail to train their workers, the whole economy suffers. Hence, training workers is a type of public good, a category that encompasses a broad range of social dilemmas. Employees face a similar dilemma in their choice of how much to contribute to the overall productivity of the organization. If employees receive a share of the profits regardless of their contribution, some may decide to free ride on the efforts of their fellow workers. If all employees decide to do so, the company will fail.The two dilemmas on the employee and organizational levels are closely interrelated. On one side, the benefits of training accrue only to the extent that employees contribute to the organization. Thus, a firm should take into account how it expects a training program to affect employee effort as well as employee turnover. On the other side, trained workers produce at higher rates, which in turn may affect how much they contribute and how often they migrate to other firms in comparison with untrained workers.The authors study the dynamics of training and turnover in firms facing both organizational- and employee-level dilemmas. First they establish a simple model that captures those conflicts and incorporates imperfect information and both worker and organizational expectations. Organizations can be both created and dissolved, and employees can move between firms, start new ones, or leave the industry for good. Next the authors summarize the different ways the dilemmas can unfold over time, collated from a number of computer experiments. For example, under one set of conditions, the double dilemma can be resolved for the industry as a whole and productivity then increases steadily over time. Alternatively, the organizational-level dilemma may remain unresolved and workers may contribute at fluctuating levels. In that case the overall productivity stays low. The authors find a positive correlation between high productivity, low turnover, and enterprise size, a relation that has also been observed in the empirical literature on training, stability, and turnover in organizations.