Do Probation Periods Works?

“In almost all cases we find large jumps in the predicted probability of a work absence after probation periods are completed.” (Riphahn & Thalmaier, 1999, p.12).

Research by Loh in 1994, using data on US hires, provides evidence that supports the hypothesis that a probation period induces self-selection by workers. Loh (1994) argued that individuals who accepted jobs with a probation period tended to be more efficient workers and less likely to quit than those who took jobs without probation. Loh (1994) hypothesized that workers who fear they will not last through the probation period, either because they are not sure their performance will be adequate or they think they may quit, will not apply for jobs with probation, whereas those who are more confident that their work will be acceptable and that they will not quit will apply for such jobs in order to obtain the higher wages that commonly attach to jobs with probation.

Loh (1994) drew three conclusions from his research:

  1. The empirical evidence suggests that employers can reasonably expect the use of probation to attract applicants with certain desirable qualities.
  2. Theoretical models of the labour market that rely on contracts as a sorting mechanism appear to have an empirical basis.
  3. Both workers and employers benefit from the widespread use of the probation period in the labour market:
    1. Workers benefit from the choice between employers with and without employment probation because that arrangement helps them maximise their discounted lifetime income; and
    2. Employers benefit because it can help them obtain workers of the kind they desire.

Some organisations view initial fixed-term contracts as a probationary stage. Depending on the job performance and labour demand, workers will transition into permanent employment within the organisation. As pointed out by Loh (1994), Rosen (1994) and Lazear (1995) probation periods may induce self-selection of those workers with higher ability because they have a higher probability to obtain permanent contracts. This means that temporary contracts with lower wages can be a sorting mechanism for organisations. Low wages during the temporary contract period will be compensated for by higher future wages at the same employer (Lazear, 1979).

Other research by Riphahn & Thalmaier (1999) demonstrated that employees on probation exhibit behavioural adjustments in response to probation periods – meaning that once the probation period ended the probability of work absences jumps and is significantly above previous levels.

You can find out more about probation periods here.

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