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

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.