An Increased Quit Rate (q) Shifts the Reservation Wage Curve Up
When the employee quit rate () increases while other factors remain constant, the reservation wage curve shifts upwards. The intuitive explanation for this is that at any given wage, the number of new hires is unchanged. To maintain the steady-state equilibrium where hires equal quits, the firm's total workforce () must be smaller. A lower level of employment for the same wage represents an upward shift of the curve. This can also be proven mathematically using the reservation wage curve formula derived from a linear acceptance probability, . In this equation, an increase in the quit rate () directly increases the slope of the line, . This causes the wage-setting curve to pivot upwards from its fixed intercept (), meaning a higher wage is required for any given level of employment.
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Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ
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