Does staff turnover cost 10% of GDP?

According to reports in today’s Fairfax papers

STAFF turnover is costing Australian businesses $100 billion a year in lost productivity, training and recruitment costs – and generation Y is copping much of the blame. …

A new study shows staff turnover for workers in their 20s is running at 40 per cent a year. The rate for all workers is 18 per cent.

$100 billion is about 10% of GDP, and more than double all of education’s contribution to GDP. It doesn’t seem very likely that staff turnover has such a negative effect on the economy, particularly as there is also a balancing positive effect in achieving a better match between jobs and workers.

And if 18% of all workers are replaced each year at a cost of $100 billion it means that every job change costs about $52,000. Maybe some high-level job turnover has costs at that level, but in the industries where staff churn is greatest, accommodation, restuarants, cafes and retail, I’m sure it is a very small fraction of that, given the relatively low levels of skill typically required and the fact that employees will bring skills from previous jobs to new jobs.

Gen Y is being unfairly blamed too. Young people have swapped jobs at lot for a long time. According to ABS labour mobility data (2006 data, the most recent) just over one in five 15-24 year olds had changed jobs in the previous 12 months. About 37% had been in their job for less than a year, the discrepancy between the two numbers being due to people who had entered the workforce during the previous year.

But that is less than the 40% of 15-24 year olds who had been in their current job for less than a year in 1976. I can’t do direct comparisons on job turnover among those with jobs through the whole year, but if anything today’s young people could be slightly more stable in their employment than young people 30 years ago.

The exaggerated results are probably due to the ‘research’ coming from a firm, exit info, that does commercial exit interviews on employees who have quit. If their sample comes from their clients, they have probably been retained by firms which believe they have a problem with staff turnover, rather than firms that are more typical.

There is no basis given for the $100 billion figure. But it sure gave exit info a headline worth far more than paid advertising.

If only journalists did a ‘does it look right?’ test, and spared us these implausible numbers.

7 thoughts on “Does staff turnover cost 10% of GDP?

  1. “today’s young people could be slightly more stable in their employment than young people 30 years ago.”

    That doesn’t follow from the figures you cite, but in any case the story is clearly an advertorial.

    Though the example of the 25 year old who has had 5 jobs in 3 years and boasts about it is telling. I reckon a job history like that would be a turn off to potential employers. Why hire someone and train them up when you know they will be off in 6 months?

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  2. I’m not sure that “blame” is the best word — it sounds too negative. I think it’s a positive — having a high level of labour market mobility is really good protection for most workers — far better than unions. It also means places that still have the “I’m the bully” style management will have to adapt, otherwise they simply won’t have good employees. If people in fields like education, for example, gave up on their union and all the crazy employment rules and simply started changing jobs whenever they hit bully mode, everyone would be far better off.

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  3. Spiros – There was a mistake (now corrected) in my post – I meant in their current job, not in the workforce. There was no data on time in workforce. But in a 15-24 year old age group in the mid-1970s it is not likely that many beyond their late teens would have been in their first ever job, so 40% in the first year of their current job suggests very high turnover.

    As Conrad suggests, while high turnover can be a negative for employers, it is not obviously a bad thing overall.

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  4. Further evidence that Fairfax newspapers are in terminal decline. Andrew, your point that the benefits of workers changing jobs also need to be taken into account is key. The biggest mistake I see in policy-making is failure to consider an appropriate counterfactual. In the case of workers changing jobs, most of both the benefits and costs are internal to the parties concerned, so it is hard to see why parties would voluntarily agree to value-diminishing exchanges. That’s not to say that better communication, etc couldn’t increase the net benefits flowing from the labour market, but it does not make much sense to say that, on average, employers and employees change jobs to make themselves worse off than they were before.

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  5. “it does not make much sense to say that, on average, employers and employees change jobs to make themselves worse off than they were before.”

    Not deliberately, But a lot of people change jobs thinking that the grass will be greener, and then they find it isn’t.

    “It also means places that still have the “I’m the bully” style management will have to adapt, otherwise they simply won’t have good employees.”

    This is true at times like now when jobs are easy to get. It hasn’t been true in the past and sooner or later it won’t be true again.

    “If people in fields like education, for example, gave up on their union and all the crazy employment rules”

    But the rules in education aren’t set by the particular educational institution that is the immediate employer. They are set by the government.

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  6. “It hasn’t been true in the past and sooner or later it won’t be true again.”
    That’s true to some degree Spiros, but with more people leaving the workforce than entering (a fairly novel situation in recent history which we’ll hit in a very short amount of time), I imagine it won’t be anything like what it has been in the past.
    As for the education predicament, I was thinking both in terms of schools and also in terms of people going in and out of the sector. If people start doing the second of these (surely many teachers have many different skills), the government will surely have to do something since their current policies simply won’t work.

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  7. There’s also the fact that increased casual employments means youngin’s like me can work two jobs and if we decide one is better than the other, I can’t imagine where the harm is in us dropping the less beneficial one.
    How is that any different to what we do as consumers in choosing which products to buy? If they can’t keep employees, they’re either not paying us enough, or they’re simply not in a sustainable business and the employee is, if anything, increasing things like GDP by getting out while the goings good.

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