Training and Turnover in Organizations

Abstract

We present a two-level model of organizational training and agent production. Managers decide whether or not to train based on both the costs of training compared to the benefits and on their expectations and observations of the number of other firms that also train. Managers also take into account the sum of their employees' contributions and the average tenure length within their organization. Employees decide whether or not to contribute to production based on their expectations as to how other employees will act. Trained workers learn over time and fold their increased productivity into their decision whether or not to contribute. We find that the dynamical behavior at the two levels is closely coupled: the evolution of the industry over time depends not only on the characteristics of training programs, learning curves, and cost-benefit analyses, but on the vagaries of chance as well. For example, in one case, the double dilemma can be resolved for the industry as a whole and productivity then increases steadily over time. In another, the organizational level dilemma may remain unresolved and workers may contribute at fluctuating levels. In this case the overall productivity stays low. We also find a correlation between high productivity and low turnover and show that a small increase in training rates can lead to explosive growth in productivity.