The concept of labor turnover was not invented by a single person.
It is a term that has been used to describe the frequency with which employees leave their jobs since the early 20th century. However, some of the earliest research on labor turnover was conducted by Paul Brissenden and Emil Frankel in the 1920s. Their work helped to define the concept of labor turnover and to identify some of the factors that contribute to it.
In 1929, Metropolitan Life Insurance Company began to collect data on labor turnover in manufacturing plants. This data was used to develop a benchmark for turnover rates, which helped businesses to track and manage their turnover rates. The Bureau of Labor Statistics (BLS) began to collect data on labor turnover in 1930, and they have continued to do so ever since.
Today, labor turnover is a well-established concept that is used by businesses and researchers to understand the factors that contribute to employee turnover and to measure the impact of turnover on organizations.
Definition of labor turnover
Labor turnover is often referred to as ’employee turnover’ and is closely related to employee attrition, also known as churn rate.
Labor turnover measures the percentage of workforce that leaves the organization in a given time period, usually one year.
It is a metric that refers to an organization’s net employee separations over a defined period of time.
How to calculate labor turnover rate?
Labor turnover is calculated by using the following formula:
Labor Turnover (%) = (Employees Leaving the Business / Total Number of Employees) x 100
Example 1: If a business employed 100 workers last year, but five workers left during the year, the labor turnover rate would be 5% in that business.
Reasons for people leaving their jobs
Leaving a job can be a difficult decision, but it can also be a great opportunity for growth and change.
The main reasons why people leave their employment can be summed up using the acronym CLAMPS. The six acceptable reasons include (C)hallenge, (L)ocation, (A)dvancement, (M)oney, (P)ride or (P)restige and job (S)ecurity.
It can be hard to leave a job, especially if people are comfortable and have a good salary. However, if workers are unhappy with their jobs for any of the reasons listed above, it is important to weigh the pros and cons of staying versus leaving.
Different types of labor turnover
Typically, there are two main types of labor turnover such as:
- Voluntary labor turnover. This occurs when an employee leaves the organization on their own accord, for example, to take another job, retire, or go back to school.
- Involuntary turnover. This occurs when an employee is terminated by the organization, for example, due to poor performance, misconduct, or redundancy.
Level of labor turnover depends on the nature of the industry, different types of unemployment rate in the area, availability of labor, etc.
A. High labor turnover. Some industries typically have higher labor turnover rates than others such as restaurants, construction work or farming. High staff turnover occurs where physically demanding jobs can be done by many low-skilled workers. It most likely happens in local areas of low unemployment where many attractive jobs available with better jobs opportunities. Many better-paid jobs with attractive remuneration packages are offered by other employers in those places. Additionally, high labor turnover can occur if staff is incompetent or lacks job satisfaction. If the result of labor turnover is high and increasing over time, then it is a bad indicator of employee satisfaction, low morale and, possibly, a recruitment policy that leads to the wrong people being employed.
B. Low labor turnover. In some professions, labor turnover rates can be very low such as law practices, medical doctors, engineering or scientific research. Low staff turnover occurs where only few people have knowledge, skills and experience to do the mentally-demanding jobs. It most likely happens in businesses that have recruited the right people for the job from the start, and that the existing employees are content and motivated at work. When employers offer training and professional development it helps to boost morale and job satisfaction. If the result of labor turnover is low and decreasing over time, then it is a good indicator of employee satisfaction, high morale and, possibly, a recruitment policy that leads to the right people being employed.
Is high labor turnover good or bad?
It depends.
High labor turnover is bad because it will result in high costs of recruiting, selecting and training new staff. Also, the loss of productivity between when experienced staff leaves and new worker settles in. With so many employees leaving the firm and coming in it might be difficult to establish positive team spirit and employee loyalty. Additionally, high rotation of workers will negatively impact customer service without regular and familiar contact with customers.
On another hand, high labor turnover is good because it will result in lots of new ideas and practices from outside brought into an organization by new workers. Additionally, businesses that plan to reorganize will find reducing staff numbers less difficult. In the end, leaving employees will not be replaced, so it is a good time to either simply get rid of less-productive and low-skilled workers, or replace them with better and more carefully selected staff.
How to achieve low labor turnover?
HR Managers should think about adjusting compensation (both individual and team), as well as benefits for their employees.
Businesses with low labor turnover tend to be those that regularly offer training for both personal and professional development.
Additionally, the firm can offer different types of employment that might be attractive to some of the employees including job-sharing, home-based or virtual office and flexible time (core time & compressed workweek).
Example 2: Labor turnover in fast-food restaurant Fast-food restaurants tend to have higher rates of staff turnover than others, even exceeding 100% in one year. Fast food restaurants such as McDonald’s, KFC or Burger King which hire lots of part-time and temporary staff are likely to accept higher rates of labor turnover. This is due to the nature of the job which is typically busy and physically demanding, the amount of payment that is low and the type of the employee who is usually low-skilled.
Staff retention
The opposite of labor turnover is staff retention.
Good staff retention ensures continuity of employment and no costs of recruiting a new worker to replace the employee who is leaving. It also results in employee loyalty.
In summary, labor turnover shows the rate at which employees leave a business organization during a defined period of time. It is a complex issue, and there is no single solution that will work for every organization.
However, by taking steps to create a positive work environment and address employee concerns, businesses can reduce labor turnover and improve their bottom line.
