There are still some senior management who fail to understand the true impact of high labor turnover. To them, the notion is that as long as the firm is still profitable and with money it can bring in people-people can COME IN and people GO OUT which doesn’t mean much to the organization. They failed to understand the true impact/cost of high labor turnover.

This article briefly describes the cost of high labor turnover, the causes and some ratio/indicator to measure labor turnover.

Let’s look at firstly the “costs” of such labor turnover:

In terms of dollars and cents, high rates of labor turnover are “expensive” in terms of:

·         Additional recruitment costs;

·         Lost production costs

      ·         Increased costs of training replacement employees

      ·         Loss of know-how and customer goodwill

      ·         Potential loss of sales (e.g. if there is high turnover amongst the sales force)

·        Damage that may be done to morale and productivity (an intangible cost)

·        Time better spend by head of department & human resources in recruiting the appropriate staff

·         Interestingly, firms who have high labor turnover, the more they advertise in the media, the more noticeable other perceive of them–what happens? why staff leave too frequently, any problem with their management? And many more queries to the extent that even with more money being offered by such high labor turnover companies, the candidate(s) will still hesitate to join them.

Upon understanding the abovementioned repercussions, we should then seriously investigate for the true cause of such high labor turnover.

Some common causes might include the following:

·         Inadequate wage levels leading to employees moving to competitors

·         Poor morale and low levels of motivation within the workforce

·         Recruiting and selecting the wrong employees in the first place, meaning they leave to seek more suitable employment·         A buoyant local labor market offering more (and perhaps more attractive) opportunities to employees

·        And many more you can think of 

Lastly, let’s look at some of the common measurement of labor turnover:

(1) “Separation rate” or “Crude Wastage rate”

This is a very simple measurement to compute the number of leavers in a period (usually a year) as a percentage of the number employed during the same period.

The formula is:-

Number of leavers / average no employed x 100Say, a business has 300 leavers during the year and, on average, it employed 2,000 people during the year, the labor turnover figure would be 15.0% 

(2) “Stability Index”

Compared to the simple separation rate, this index assist us to understand/illustrate the extent to which the experienced workforce is being retained.

The formula is:

Number of employees with one or more years’ service now / Number employed one year ago x 100Labor turnover will vary between different groups of employees and measurement is more useful if broken down by department or section or according to such factors as length of service, age or occupation.Briefly to conclude, high labor turnover seriously causes problems for the business. It is costly, lowers productivity and morale and tends to get worse if not dealt with. On the other hand, with low labor turnover, the firm can enjoy “lower” costs as mentioned above. However, it is equally important to note that a firm also need some sort of “natural” level of labor turnover to bring in new ideas, skills and enthusiasm to the labor force. The “natural” level means that the firm can slowly reduce its workforce without having to resort to redundancies(natural wastage).   

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