Corporate social responsibility and labor turnover

Abstract

Purpose

This paper aims to estimate empirically the effect on the voluntary turnover (quit) rate of employees when a large public corporation already judged as an outstanding employer is also ranked as being socially responsible by an external review organization.

Design/methodology/approach

The paper employs a cross‐section regression of the turnover rate of 84 of Fortune magazine's “100 Best Employers” against measures of corporate social responsibility (CSR) and several other control variables such as annual wages, ethnic and gender composition of the labor force that economic theory and prior studies have identified as explaining firm labor turnover.

Findings

Adoption of business policies that cause the firm to be rated as socially responsible reduce the annual quit rate by 3 percent to 3.5 percent, which amounts to a 25‐30 percent reduction, as compared to non‐CSR public corporations or a larger comparison set including privately held and not‐for‐profit firms.

Research limitations/implications

The wider universe of public corporations may not realize comparable turnover benefits from CSR as these “best employers” because these firms might be especially vulnerable or sensitive to corporate image when hiring workers.

Practical implications

The model estimated permits calculation of the annual rise in average wages that would be required to reduce turnover by the same amount as CSR, a sum of approximately $3,700 per year or about 9 percent of the mean wage, with a lower bound estimate of about $1,000. This suggests that these firms can significantly reduce labor costs by investing in worker‐friendly employment policies, which account for half of the entire measured CSR impact.

Originality/value

This is believed to be the first effort to quantify rigorously the effect of CSR on the employment side of firm performance. Prior labor studies have looked at hypothetical employment scenarios involving students.

Citation

Vitaliano, D.F. (2010), "Corporate social responsibility and labor turnover", Corporate Governance, Vol. 10 No. 5, pp. 563-573. https://doi.org/10.1108/14720701011085544