The Relationship between Employee Turnover and Firm Performance: An Analysis of Major League Baseball from 2002-2016

Does turnover improve performance by allowing firms and employees to optimally match, as outlined by job matching theory? On the other hand, could turnover harm productivity by disrupting team dynamics, as outlined by the Firm Specific Human Capital Model (FSHCM)? I attempt to answer these questions through an analysis of Major League Baseball. For exploring the general relationship between turnover and performance, I regress team turnover rates against their winning percentage using both OLS and quadratic models. For specific theories, I analyze whether positional turnover, inter-league turnover, or the interaction between turnover and ballpark characteristics affect team performance using OLS regression. I attempt to pinpoint precisely how job matching theory and FSHCM could be operating in baseball by analyzing these secondary explanatory variables. I find no evidence to suggest that turnover has a significant effect on team performance over a full season. Rather, roster quality and past winning percentage appear to be better indicators of future winning percentage. However, when looking at the effect of turnover over only half the season, it appears that the best teams from the previous season benefit and the worst teams from the previous season are harmed. I attribute this difference to the ability of better teams to attract better players during the off-season.