Firm-level wage volatility and employee tenure

We document a robust negative association between firm-level wage volatility and employee tenure using a panel of 4,594 firm-year observations from Korea Composite Stock Price Index (KOSPI) listed firms during 2012–2019. Drawing on the implicit contract literature, we interpret firm-level wage volatility as a deviation from the wage insurance that firms traditionally provide to risk-averse workers. The Korean setting is particularly informative, as the country’s historical seniority-based compensation system has been gradually transitioning towards more performance-based pay, generating meaningful cross-firm variation in compensation stability. A one‑standard‑deviation increase in wage volatility is associated with approximately 9 months shorter average employee tenure, an economic magnitude comparable to that of firm size and audit quality. Firms in the top decile of wage volatility exhibit nearly 17 months shorter tenure than those in the bottom decile. We interpret this firm-level cross-sectional association as reflecting persistent compensation policy rather than transitory wage shocks. Our findings contribute to the literature on firm-level wage insurance and employee retention, with implications for understanding labour market dynamics in transitioning institutional environments.