Employment Stability and Firm Performance Over Time: The Moderating Effect of Industry Volatility

Abstract This study investigated how employment stability affects firm performance over time. While some scholars have identified the strategic benefits of employment stability, others have emphasized its associated costs. We theorized a temporal perspective to reconcile these contrasting views. Using publicly traded firms in Compustat North America from 1985 to 2018, we found that employment stability negatively impacts current firm performance but benefits a firm's long‐term performance. Additionally, we found that the dynamic effects of employment stability on firm performance become more pronounced when a firm's industry faces higher volatility. Our study provides an important theoretical framework for reconciling seemingly conflicting arguments regarding the impact of employment stability on firm performance. Empirically, we demonstrate the contrasting effects of employment stability on firms’ current and long‐term performance and highlight the boundary conditions of industry volatility in these relationships.