Training and Turnover in the Evolution of Organizations

We elucidate the interplay between the free rider dilemmas faced by both management and employees of a firm. Both managers and employees face a free rider dilemma: organizations can hire workers trained by competitor organizations and workers that shirk can still receive a share of the profits from production. If all organizations and employees reason similarly, the overall level of production will be very low. We construct a dynamical model of the two-level social dilemma and find, by running computer experiments, that the dynamical behavior at the two levels is closely coupled and highly path-dependent. In some cases the double dilemma is resolved for the industry as a whole and productivity increases steadily over time. In others, the organizational level dilemma remains unresolved and workers contribute at fluctuating levels. In these cases the overall productivity stays low. Our computer experiments indicate that low turnover, large enterprise size and high productivity are positively correlated, a finding that is in line with the empirical literature on turnover and training in organizations.