Optimal Turnover Rates and Organizational Performance in Public and Nonprofit Organizations

Abstract

Until recent years, most public and nonprofit management studies have focused on the determinants of turnover rather than the consequences. In this line of literature, a better theory of turnover for public and nonprofit organizations, especially the one focused on outcomes of turnover, is needed. This dissertation seeks to advance our knowledge on the issues of turnover and organizational performance in public and nonprofit management. Using the three-paper model, the dissertation not only develops a theoretical model on turnover and performance, but also conduct empirical testing on how turnover affects the performance of public and nonprofit organizations. Specifically, the first essay presents an economic model based on turnover cost-benefit theories by incorporating labor market conditions and quality of employees, which can be applied regardless of sector and industry. To do so, I re-evaluate turnover and retention costs that change according to employee quality and labor supply and demand. I also propose several testable hypotheses for future scholars, which enable them to examine under what conditions the optimal rates of turnover change and how public managers would benefit from an occurrence of turnover. The second essay investigates the effects of employee turnover on organizational performance in Florida school districts, distinguishing types of turnover as voluntary and involuntary. In the essay, I find an inverted-U shaped relationship between involuntary turnover and organizational performance, first positive and then negative. The last essay tests an inverted-U shaped relationship in the context of the United Way nonprofit organizations. Findings suggest that governing board turnover rates have a nonlinear effect on nonprofit financial capacity, first positive and then negative. Taken together, both theoretical and empirical investigations in this dissertation suggest that optimal turnover rates exist and that those can vary by sector. The findings provide an important lesson for both scholars and practitioners that turnover should be appropriately managed, not necessarily minimized.