Wages, employment, labour turnover and the accessibility of local labour markets

In this paper, we extend a dynamic efficiency wage model to the case of multiple local labour markets that interact through migration. Firms are concerned about turnover costs. The quitting behaviour of workers is a function of local labour market conditions, non-wage income and the costs and benefits of migration to other local labour markets. A synthetic micro sample of 20,302 observations from the 1986, 1991 and 1996 New Zealand Censuses of Population and Dwellings provides evidence supporting the theory. Across subgroups, the wages of workers with relatively inelastic local labour supply and/or lower geographical mobility are relatively more responsive to changes in the local employment rate. The evidence is consistent with the notion that local employers engage in monopsonistic competition with respect to the employment of such workers.