The firm discourages high turnover individuals from applying and encourages low turnover workers to apply for employment by predictably increasing an employee’s wage with his tenure at the firm. This has the effect of allowing the applicant essentially to guarantee his longevity with the firm, since he himself pays the consequences, in terms of foregone higher earnings, if he quits prematurely. In other words, the guarantee enables the firm to trust the applicant’s protestations that he is a steady and stable worker, at the same time that it makes the firm relatively indifferent to the truth, since the firm no longer bears the onus of being wrong.
Salop and Salop. (1976) “Self-Selection and Turnover in the Labor Market.” QJE. P. 620.