Labor Turnover
Labor turnover, often referred to as employee or staff turnover, is the rate at which workers leave a company and need to be replaced over a specific period, typically a year. While some turnover can refresh a workforce with new talent, excessive turnover poses significant challenges, potentially harming both the organization and the broader economy. Factors influencing labor turnover include low wages, poor working conditions, lack of management support, insufficient training, and better job offers elsewhere. High turnover rates can disrupt production, lead to increased training costs for new employees, and decrease overall productivity. Various theories have been developed to understand the psychology behind turnover, emphasizing factors like job satisfaction, perceived alternatives, and workplace commitment. Additionally, labor turnover is affected by broader economic conditions; during downturns, employees are less likely to leave, while firms may hesitate to fill vacancies. In the context of privatization and economic transitions, especially in emerging economies, labor turnover can reflect shifts in job security, workplace conditions, and employee rights. Understanding labor turnover is essential for organizations aiming to retain talent and maintain a productive workforce.
Labor Turnover
Abstract
Turnover refers to the number of workers or staff that leave a company and must be replaced. Whereas some amount of turnover is inevitable, and some of it can be beneficial—that is, it brings fresh new talent into the company—too much of it is undesirable and may cause harm not only to an organization, but also, taken to an extreme, to a national economy. Emerging economies, in particular, must deal with issues of turnover as they transition from one economic model to another.
Overview
Labor turnover, also known as employee or staff turnover or worker turnover, refers to the number or proportion of a firm's labor force that leaves during a specific period, usually the course of a year. Workers may leave a firm for several reasons, such as attrition, dismissal, or resignation. There are a series of formulas by which to calculate employee turnover rate.
Related to turnover is the term "market churn," which refers to replacing workers who leave with new ones. In this sense, the movement of workers is considered as their reallocation to more productive or efficient ends. Seen this way, the churning of the labor market contributes to market and economic growth. On the other hand, when hard times hit, such as during a recession, workers are less inclined to leap from voluntarily one firm to another in search of better jobs, and when they do move, voluntarily or not, firms tend to be reluctant to fill the newly vacant positions.
In any case, there are many causes for labor turnover: low wages, unsatisfactory or inferior working conditions, apathetic or overly demanding management, lack of incentives and of opportunities for promotion, lack of proper training, better offers elsewhere, a bad fit in the organization, life changes, and so on. Some causes are unavoidable; for example, a firm may terminate an employee because of low demand due to a recession or worker insubordination, or the worker may retire or die. On the other hand, some causes may be avoidable, such as when workers leave for a better work environment or job conditions, better management, or for higher wages or incentives.
Organizations tend to be very concerned about labor turnover. In general, firms dislike and avoid turnover, because it is harmful and costly to the organization. When a high turnover rate exists, the firm's production planning deteriorates, because workers are not there long enough to implement them. Furthermore, new workers hired to replace them often lack previous experience and training and, it follows, losses arise caused by factors such as defective workmanship, spoilage, workplace accidents, and wasted time. The organization may then be subjected to additional costs for worker training and issues related to decreased productivity.
Firms, then, are often concerned with finding ways to reduce or avoid turnover. However, studies on unemployment often miss out on the complexity of the issue. These tend to visualize it in light of worsening conditions that lead firms to let go of workers (as occurred on a large scale in the economic downturn of 2008) or in light of improving economies in which abundant new jobs are created. However, labor markets remain active even during an economic downturn. On the other hand, during prosperous economic times, firms may hire if they expand or shed workers if they implement newer and more efficient technology. In fact, firms suffering in an economic downtown may seek to hire workers to fill crucial vacant posts.
Another concern is that of measuring turnover rate accurately. A common method is known as the "quit rate," that is, the number of workers who quit an organization during a specific length of time. Such a measure is tied to that of job satisfaction among workers. For example, if employees are leaving an organization at faster rates than normal for that field, this is usually due to such negative factors as low wages and benefits, unsatisfactory job conditions, or discontent between workers and managers. On the other hand, when the quit rate is lower than average, this is typically a sign of high workplace satisfaction among employees.
With the purpose of explaining—and managing—employee turnover, organization experts have sought to develop theories and systems that serve to shed light on the issue. The first empirical or scientifically-developed turnover theory was developed by James G. March and Herbert Simon, in collaboration with Harold Guetzhow, who published their findings in their seminal book Organizations (1958). March and Simon found that the factors underlying workers' decision to participate or leave an organization, were the perceived desirability and ease of movement; that is, the perceived desirability of movement is usually tied to job dissatisfaction whereas the notion of ease of movement is associated with the availability of job alternatives. To March and Simon, employees who are satisfied at the workplace—and, furthermore, do not perceive other viable job alternatives in the market—have a higher likelihood of staying in their job and participating in the organization. March and Simon sparked a field of organizational theory that became further developed during the second half of the twentieth century.
Further Insights
In time, several other theorists began to build upon the findings of March and Simon. In 1977, William H. Mobley introduced the concept of "intermediate linkages," a model that traces how job dissatisfaction leads to turnover. Mobley's model follows a psychological route that culminates in an employee's leaving the workplace. The employee experiences a series of stages, from initial thoughts of dissatisfaction and quitting to a cost-benefit analysis (i.e., the cost of seeking an alternative job offer), to actual departure, usually after having found another job. The impact of Mobley's model was profound, and continues to be a core of modern organizational research.
In 1979, Mobley, in collaboration with other social scientists, conceptualized a new model with a wide variety of distal causes–that is, those situated away from the point of origin—such as labor market, environment, and individual characteristics, that may affect employees' job satisfaction, perceived pay-offs, and decisions to quit. This model hinges largely not only on proximate causes for employee dissatisfaction, but also on workers' expectations, anticipations (i.e., perceived likelihood of future promotions), and personal attributes.
In the 1980s, Richard M. Steers and Richard Mowday based their "model of turnover" on a slew of new empirical findings; in this model, Steers and Mowday argued that commitment to the organizational commitment and job performance were major turnover causes, and they acknowledged, as well, that workers may find different ways of accommodating dissatisfaction in the workplace other than quitting, such as absenteeism. Billy Hulin also published on how marginal workers fall outside a Mobley decision-making rationale when leaving a workplace, as they may be less invested in a job.
In the 1990s, new paradigms for employee turnover appeared. Thomas Lee and Terence Mitchell proposed in 1994 the unfolding model of voluntary employee turnover. While many theories were based either on market phenomena or the psychological processes among a heterogenous workforce, Lee and Mitchell argued that events—described as shocks—are catalysts for the quitting process of workers. In this view, there are several paths to turnover, and most are triggered by shocking events that spark thoughts of leaving. In one path, a shock may activate a pre-existing plan, such as that of returning to school. In the second path, a disagreeable event, such as a conflict with a superior, may trigger an immediate action, such as that of quitting. Other events that trigger thoughts of leaving a job commitment may be outside job offers. In 2015, Morgeson, Mitchell and Liu expanded upon Lee and Mitchell's "thinking of leaving" model, by arguing that not everything that happens is viewed as an event; that is, different people may perceive things differently. Therefore, it is important to understand how people value an event or how they weigh it, according to factors such as novelty and disruptiveness.
Other twenty-first century theorists developed theories that focused on integrated motives for both leaving or staying—that is, social pressures—and argued that there are various decision-making types, such as "impulsive quitters."
On the other hand, theorists increasingly focused on why people stay at a job. Mitchel et al. (2001) introduced the concept of "job embeddedness" to examine a series of factors that may induce individuals to stay in an organization or a collective group. These include factors such as job fit, sacrifices made, and community or group links. In fact, studies have found that job embeddedness reduces turnover rates, as well as enhances performance and reduces absenteeism.
Across the spectrum, however, most theorists seem to agree that best practices and better management-employee relations, as well as greater investment by a firm in its human resources or employees, increases workforce cooperation, loyalty, and job satisfaction, and reduces employee absenteeism and labor turnover rates.
Issues
One of the current issues dealing with labor turnover in the twenty-first century, is the role of privatization; in fact, privatization first became a considerable topic of debate in the 1990s. At the center of the issue worldwide, due to the expansion of multinationals in emerging economies and the growing privatization of former state-owned interests around the world, was the issue of manager and employee relations in transitioning economies and firms.
Privatization has become a prevalent international phenomenon with thousands of studies on its impact and development. However, most studies focus on the largest foreign-owned firms in developed market economies, and experts are still debating issues of work relations in the privatization of medium-sized firms in emerging nations. Most studies highlight an undeniable fact: privatization usually leads to higher firm productivity, even if its magnitude may vary considerably across nations.
Furthermore, supporters of privatization contend that in the last decades, private firms have entered more and more markets previously dominated by governments, not only in emerging economies, but also in the well-established economies of wealthier nations. Studies conducted on the work conditions and wage dynamics of privatization in South Korea, for example, do not show large negative effects on either work conditions and employment wages. Reports repeatedly show better outcomes and work conditions for workers in foreign privatized firms. Even in sectors privatized by local or national firms, according to studies on this market, wage losses tend to be low. It is important to note, however, that Korean government workers transitioned to the private industry with many of their labor rights firmly protected.
The result of Eastern Europe's transition from a state-controlled market to a market economy, on the other hand, has been mixed. For example, the labor market in Russia showed a very low rate of worker turnover. In general, however, the number of Russian workers who transitioned from government jobs to the more efficient private firms at the time of privatization, was much lower than in other emerging economies undergoing economic transition. According to a special report published by the Russian Audit Chamber in the 1990s, the process of privatization did not strengthen or support social and work protections for employees of privatized organizations.
Moreover, privatized firms in the former Soviet Union engaged in numerous violations of labor laws, especially in the field of workplace safety. The process of transitioning had included ownership stakes for workers in the privatized firms. But ownership did not better workplace conditions, employee discipline and commitment, or the quality of work. Productivity did rise for privatized Russian organizations, however, and though wages were higher than at government organizations, they did not make up for the loss in public sector benefits, such as in access to health services. As one would expect, factors such as these led to worker dissatisfaction, attrition, and turnover.
Nevertheless, private firms continue to enter markets previously controlled by the public sector or governments. Contracting out public services is usually justified on efficiency and cost-benefit grounds; that is, private firms are expected to provide better services, more efficiently, at a lower price. Because of higher market competition, private firms have stronger incentives to cut costs and improve customer service and productivity. Critics have pointed out, however, that private firms often lower the quality of products and services, for those very same reasons. Other experts have proposed middle-of-the-road solutions. For instance, workers' protections and the quality of the service provided to the public must be clearly specified in the contract.
Many privatization opponents are not mollified by mediating proposals. They argue that privatization is toxic; private contractors provide inferior working conditions to those in government or even compared with private industries not linked to privatization. Moreover, in some industries, turnover rises significantly in a company immediately after privatization, since firms make significant workforce reductions in the years immediately after privatization. In fact, many employees who transition from being government employees to private employees, lose job security, and government benefits such as holidays, compensation for workplace accidents, retirement, and other gains usually acquired by collective action. As it is, in some countries, such as the United States, employees after privatization gradually or rapidly lose the right of unionizing and collective action.
Many experts contend that the model of privatization, in one way or another, is here to stay. It is true that competition among privatized firms has facilitated downsizing. Yet newer, smaller firms have been active job creators in many industries. A well-planned privatization process that takes into consideration the well-being of its stakeholders, mainly workers and the public it serves, can contribute in positive ways to productivity, efficiency, and market flexibility. According to market studies, for example, privatized firms have created more employment opportunities in Eastern European countries, although it must be acknowledged that it has had adverse effects in others, such as in Russia. In fact, the instances of failure are opportunities to take stock of lessons learned.
To avoid employee disenfranchisement, a government subcontracting a private firm may ensure the participation of employees in the decision-making process, allowing them more control over their work environment and prospects. In many societies, workers are involved in participatory models. Participatory models have been shown to improve employee productivity as well as commitment and sense of ownership. It benefits a firm because, beyond the positive results in employee retention, long-lasting workers tend to possess a treasure trove of specialized experience in the activities and production processes of the firm.
According to most labor productivity indicators, productivity increases substantially with privatization. Yet cost savings do not necessarily need to take place through worker downsizing and benefit reductions. In fact, as many studies show, these measures tend to foster a race to the bottom that ultimately results in high turnover rates.
Terms & Concepts
Churn Rate: Also known as rate of attrition, it is used in many fields to account for the number of individuals leaving a collective group over a specific period of time.
Cost-benefit: Related to analyzing or calculating a situation by taking into consideration all its costs as well as its benefits.
Embeddedness: In social sciences, the level of dependence of an activity or phenomenon on its environment, such as that of a worker on his or her workplace.
Privatization: Also known as divestiture, in its simplest form, it refers to the transfer of government services or assets to the private sector.
Transition Economies: A transition economy is changing from a centrally planned economy, such as the communist system of the Soviet Union, to a market economy, that is, a capitalist system.
Quit Rate: The ratio of individuals in an industry or organization that leave their jobs voluntarily over a specific period of time.
Bibliography
Bauer, K. (2015). Comparison of U.S. and international labor turnover statistics. Monthly Labor Review, 1–16. Retrieved November 28, 2017 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=108806167&site=ehost-live
Borisova, A. (2017). Staff management mechanism based on the assessment of economic losses due to staff turnover. Proceedings of the International May Conference on Strategic Management, 344–352. Retrieved November 28, 2017 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=124005886&site=ehost-live
Buttner, E., & Lowe, K. (2017). Addressing internal stakeholders' concerns: The interactive effect of perceived pay equity and diversity climate on turnover intentions. Journal of Business Ethics, 143(3), 621–633. Retrieved November 28, 2017 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=124415029&site=ehost-live
Cahuc, P., Charlot, O., & Malherbet, F. (2016). Explaining the spread of temporary jobs and its impact on labor turnover. International Economic Review, 57(2), 533–572. Retrieved November 28, 2017 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=114884818&site=ehost-live
How to predict turnover on your sales team. (2017). Harvard Business Review, 95(4), 22–24. Retrieved November 28, 2017 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=123738384&site=ehost-live
Lee, T. W., Hom, P. W., Eberly, M. B., Li, J., & Mitchell, T. R. (2017). On the next decade in research in voluntary employee turnover. Academy of Management Perspectives, 31(3), 201–221. Retrieved November 28, 2017 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=124713277&site=ehost-live
Sund, K. (2015). Did the introduction of private contractors improve turnover to employment in the Swedish labor market? Journal of Labor Research, 36(4), 389–408. Retrieved November 28, 2017 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=111004437&site=ehost-live
Sunder, S., Kumar, V., Goreczny, A., & Maurer, T. (2017). Why do salespeople quit? An empirical examination of own and peer effects on salesperson turnover behavior. Journal of Marketing Research (JMR), 54(3), 381–39. Retrieved November 28 2017 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=123770253&site=ehost-live
Surienty, L., Ramayah, T., Lo, M., & Tarmizi, A. (2014). Quality of work life and turnover intention: A partial least square (PLS) approach. Social Indicators Research, 119(1), 405–420. Retrieved January 1, 2018 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=97943541&site=ehost-live
Suggested Reading
Chadi, A., & Hetschko, C. (2018). The magic of the new: How job changes affect job satisfaction. Journal Of Economics & Management Strategy, 27(1), 23–39. Retrieved January 1, 2018 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=127745515&site=ehost-live
Huang, Y., & Zhang, Y. (2017) Wage, foreign-owned firms, and productivity spillovers via labour turnover: A non-linear analysis based on Chinese firm-level data. Applied Economics, 49(20), 1994–2010. Retrieved January 1, 2018 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=122994255&site=ehost-live
Renn, Allen, D., & Huning, T. (2013). The relationship of social exclusion at work with self-defeating behavior and turnover. Journal of Social Psychology, 153(2), 229–249. Retrieved January 1, 2018 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=85285385&site=ehost-live
Rubenstein, A. L., Eberly, M. B., Lee, T. W., & Mitchell, T. R. (2018). Surveying the forest: A meta‐analysis, moderator investigation, and future‐oriented discussion of the antecedents of voluntary employee turnover. Personnel Psychology, 71(1), 23–65. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=127847827&site=ehost-live
Watanabe, M., & Falci, C. D. (2016). A demands and resources approach to understanding faculty turnover intentions due to work—family balance. Journal of Family Issues, 37(3), 393–415.