Labour Turnover, Wage Structure, and Natural Unemployment

A firm may reduce its turnover and the entailed turnover costs by
raising wages. A rise in unemployment reduces turnover and turnover
costs in a similar way. The interaction of these effects leads – in
presence of perfectly flexible wages – to a stable equilibrium in
the labor market which clears the market but accidentally.
Unemployment increases with increases in labor mobility. Wage
differentials arise between perfectly identical workers working in
different firms that face different turnover costs.