Shared Hardships Strengthen Bonds: Negative Shocks, Embeddedness and Employee Retention

TL;DR

This study shows that negative shocks, like equipment failures, can unexpectedly increase employee retention and commitment when firm and employee incentives are aligned, highlighting the role of shared hardships in strengthening bonds.

Contribution

It provides empirical evidence that aligned incentives can turn negative shocks into retention opportunities, a novel insight in labor turnover literature.

Findings

Negative shocks can increase employment duration.

Shocks generate positive employee sentiments.

Aligned incentives moderate shock effects.

Abstract

Jarring events inspiring reflection, known as ``shocks" in the literature, are the motive force in explaining changes in employee embeddedness and retention within the unfolding model of labor turnover. Substantial research effort has examined strategies for insulating valued employees from adverse shocks. However, this paper provides empirical evidence that unambiguously negative shocks can increase employee retention when underlying firm and employee incentives with respect to these shocks are aligned. Using survival analysis on a unique data set of 466,236 communication records and 45,873 employment spells from 21 trucking companies, we show how equipment-related shocks tend to increase the duration of employment. Equipment shocks also generate paradoxically positive sentiments that demonstrate an increase in employees' affective commitment to the firm. Our results highlight the important moderating role aligned incentives have in how shocks ultimately translate into retention. Shared hardships strengthen bonds in employment as in other areas.