Labor Turnover: Reasons and Strategies for Reduction

Introduction

One of the major problems that have rocked organizations’ human resource departments is managing labor turnover. The rate of staff turnover in organizations continues increasing. Overcoming staff turnover within organizations helps in enhancing employee retention, improving labor recruitment and reducing organization’s cost. It also improves employee morale and nurtures a healthy knowledge base. At times, labor turnover is foreseeable and of assistance to organizations.

However, too much of labor turnover may be detrimental with respect to cost associated with recruiting new labor force and training (Armstrong 2003, p. 245). Labor turnover within organizations varies with time depending on economic cycles. For instance, organizations record low labor turnover during recessions and high labor turnover rate when economy is vibrant. There are two categories in which turnover is classified, that is internal or external. Internal turnover arises in the event of the employee changing his or her job position to assume a different one in the same firm.

This method of turnover may have positive results to organization such as increased productivity as employees experience a morale boost by changing their tasks. At times, employee morale is low due to poor supervision. When such employees leave their positions and join new positions with good supervisors, their morale tend to increase hence improving their productivity. On the other hand, internal labor turnover may have negative effects within an organization especially if the move is involuntary. It may lead to project disruption. External turnover on the other hand is where employees leave one organization and join another.

The general formula used in calculating labor turnover rate within a given period is as given below.

  • Turnover = Total number of leavers over a period X 100

Average number of staffs employed over a period: The figure is expressed as a percentage of the total number of staffs employed within a specific period. Some scholars have argued that the number of leavers should include those who leave organizations due to retirement, firing and idleness. The number does not encompass those that leave due to expiry of their contracts. This figure has been excluded as it does not help in determining whether the organization experiences problems with respect to its labor force (Beardwell, Holden & Claydon 2004, pp.6-51). The main objective of calculating labor turnover rate is to understand the labor problems affecting an organization.

Definition of Labor turnover

Different scholars have come up with labor turnover definitions based on different approaches. For Ivancevich and Glueck (1989, p.73), labor turnover refers to the net effects of exit of some employees from an organization and entrance of others. Kossen (1991, p. 212) defines labor turnover as the amount of employee movement in and out of an organization. Labor turnover in a human resource context refers to the features of a given organization or industry, with respect to the rate at which its owner gains and loses staffs (Singh, Chabra & Taneja 1994, p. 345).

Labor turnover refers to the ratio of employees leaving a specific organization at a specific time period. This is especially in instances where employees leave an organization prior to the expected end of their tenure (Loquercio, Harmmersley & Emmens 2006, p. 42). Labor turnover; also known as staff turnover is the rate of change in working staffs that is alarming during a specific period (Bratton & Gold 2003, p. 276).

Most of the above scholars have come up with their definitions of labor turnover based on indefinite period or permanent employment contracts reached upon between the employee and employer. This is the main reason whey they have made assumptions of the in and out movement of all employees without focusing on the type of employment. Loquercio et al have made no considerations to expected termination of contractual employment which in real life situations occurs and is a general feature in most organizations.

Case Study: Tainan Research Park

Tainan Research Park (TRP) is situated in Taiwan. It is a research company that focuses on improving park management within the country. TRP claims to be one of the companies that hire the most qualified staffs coming from the most famous universities in Taiwan. The company is well known throughout the country. As a result, many people prefer working with it hence receiving a lot of applications every year. Most of the students from Taiwanese universities go for their internships in the company. This makes the company have a large pool of potential employees throughout the year. From those who graduate as well as those who go through internship with the company, they are assimilated to the various engineering departments found in TRP. Most of its staffs responsible for research and development have high levels of education. 65% of these staffs have master’s degree while 15% have Ph. Ds. This is because most of the development work in the company requires a lot of skills (Chen, Woods, Zhao & Chuang 2008, pp.3-24). The average age of its employees is thirty five years with approximately 80% of its employees being unmarried. Despite the staffs being highly remunerated, the working environment is too stressing. The high remuneration requires them work for more hours. The company’s management also expects every staff to take part in realizing the company’s strategic goals by innovating new products. The nature of their work has led to most of the staffs having little or no social life. Married engineers find no time to spend with their families. This results in most of their marriages breaking up. In the end, the divorced engineers find their morale at work going down leading to most of them being ineffective in their jobs. They become less creative and innovative. For unmarried staffs, it is difficult for them to make friendships during working days. This is because their work is highly competitive. Long hours spend within the company denies them an opportunity to make friendships even outside the company.

The tight working schedule has resulted to TRP experiencing high labor turnover every year. In the year 2008 turnover rate was at 65%. About 30% of engineers in the company were leaving in bid to escape high competition in the company. They wished to work in an environment where they felt worth of themselves and where they could determine their work performance. Other engineers cited their reasons for leaving the company as an aim to improve their salaries. Some argued that as long as they worked for long hours, they deserved to be paid even highly to allow them retire at early age. Because of past salary increment, there is high disparity in payment between engineers working in different departments. Some staffs working for the same long hours (especially those in accounting and payroll departments), their salary is about fifteen times less than that earned by engineering designers (Chen, Woods, Zhao & Chuang 2008, pp.4-26). This has led to most of them leaving the company.

The company lacks qualified managers. Despite it employing the most qualified engineers, the company has poor management in all its engineering departments. Most of the managers are appointed from engineering designers. These people have knowledge in engineering but have no knowledge in management. The company fails to conduct on the job training to provide its staffs with such knowledge. Consequently, those elevated to managerial posts have poor management techniques thus not motivating their staffs. This reason, coupled by the fact that the job is stressful leads to most of the staffs being demoralized. This has contributed to TRP experiencing high rate of labor turnover.

Literature review

Employee turnover have been a topic of study for many years. A lot of literature has been compiled detailing the reasons for voluntary employee turnover in organizations. This has been through development of multivariate models consisting of numerous numbers of factors identified as the main contributors of labor turnover. By researchers testing these models, they have been able to predict the main reasons why employees leave organizations. However, the current researches have been criticized for only using limited variables to analyze the reasons of employee turnover. They have also not been able to put into consideration the psychological process involved when making a decision to leave an organization. Over time, there have been numerous factors that have been found to consistently contribute to labor turnover. According to Mobley, Griffeth, Hand & Meglino (1979 pp.93-522), job content, age, job satisfaction and tenure contribute to labor turnover in most organizations.

Causes of labor turnover

Comparison of alternatives

There has been concrete evidence of effects of conditions prevailing in labor market on turnover rates. From a study conducted by Mobley et al, it was realized that there is a clear relationship between turnover rate and economic factors such as employment level and available job opportunities. At individual levels, it was identified that the decision to leave or remain in an organization depended on availability of alternative and better employment opportunities. Actual alternative opportunities have been found to significantly contribute to labor turnover than perceived opportunities. Most employees have opted to leave organizations only when they are assured of availability of alternative opportunities rather than relying on mere speculations. Nevertheless, there have been cases of employees leaving organizations on perceiving that they will get better opportunities.

Intentions to leave

Most of the studies that have been conducted focus on the actual turnover. Limited studies have been conducted on intentions to quit. Despite it being hard to conduct research on people who have already left from an organization, scholars posit that there is a strong connection between intentions to leave and definite turnover. It has been noted that the relationship between intention to quit and actual turnover is steady and generally stronger than the relationship between job satisfaction and turnover. However, it has been found to only account for less than a quarter of the unpredictability in turnover (Davies, Taylor & Savery 2001, pp.66-373). Most of the studies conducted on supposed opportunities have found it to have a significant relationship with intentions to leave. It has been found that intentions to leave do not necessarily lead to impetuous behavior. They also do not necessarily lead to definite turnovers within organizations.

Organizational commitments

Tang, Kim & Tang (2000, pp.13-245), confirmed that there is a strong connection between turnover and employee commitment to organizations. They stated that organizational commitment acts as a stronger forecaster of turnover in organizations than general job fulfillment. There are different categories of organizational commitment. Allen and Meyer (1990, pp.-18) conducted an analysis on the relationship between turnover and three aspects of attitudinal pledge. These aspects are; affective, normative and continuance commitments. Affective commitment is a situation where an employee strongly identifies with and get involved in all organization activities. Normative commitment is a situation where an employee takes it as his or her responsibility to stick to an organization. Continuance commitment entails an employee remaining within the same organization due to fear of costs associated with him or her leaving the firm.

Basically, employees with affective commit will remain in an organization for a long time as they desire to do so. Employees with strong continuance commitment remain in organizations because they are compelled to do so. Such employees lack an alternative. All these aspects of commitment have been found to be poor predictors of turnover in organizations. Affective commitment has been identified as the most influential variable associated with turnover.

Wastage and stability index

Normally, organizations use wastage rate to determine their turnover rates. This calculates the number of employees that leave an organization in a specific period as a percentage of the average number of employees available during that period. The average number of employees within organizations is determined by adding the number of employees at the start of the duration to those employed at the end of the duration and dividing the total by two. This measure guarantees that all departments within an organization do not provide inconsistent figures. However, this measure does not cater for specific types of leavers. Instead, the method accounts for all categories of leavers. The method does not put into considerations the reasons whey specific employees leave an organization. The higher the wastage rate, the higher the labor turnover and the converse is true. Stability index, on the other hand, gives an indication of the rate at which organizations are retaining their qualified employees (Firth, Mellor, Moore & Loquet 2004, pp.70-187). This index can be used to determine the stability of an entire organization or departments within an organization. The index is determined by expressing the number of employees that have served an organization for one year or more as a percentage of the total employees recruited in one year. An increase in stability index reflects a positive progress in an organization with respect to retention of skilled staffs. The higher the stability index the lower the labor turnover and vice versa. Low levels of stability within an organization indicate high wastage rates. In case wastage and stability index percentages are high, it implies that an organization is suffering from miniature number of high turnover rates.

Academic models associated with labor turnover

Most of the available researches delve on conditional aspects of turnover process. To effectively deal with labor turnover in organizations, it calls for advanced methods of turnover analysis to be established. This will help in analyzing turnover based on reasons for employees leaving an organization. The significance of labor turnover to organizational progress has led to establishment of varied models used in researching and passing across information regarding labor turnover. There are various academic models that have been established with respect to labor turnover study.

Simon and March Model

According to this model, the level of job satisfaction plays a significant role in the process of the employee determining whether to quit or continue working in a given firm.(March & Simon, 1958, p.99).

The model’s account of motivation is borrowed from organizational symmetry. It portrays how a balance is attained between the organization and employees with respect to inducement and contributions that guarantees continued existence of the organization. Organizations offer competitive salaries to motivate and encourage their staffs participate in its duties. Increment of inducements within organizations lowers the propensity of employees quitting from an organization. March and Simon argues that labor turnover results from two factors which are supposed attractiveness of movement fueled by job satisfaction and supposed ease of movement fueled by availability of alternative job opportunities.

The drawbacks of this model have been found to be emphasizing on the significance of salary as a motivator. The model assumes other fundamental sources of employee satisfaction. In spite of pay being one of the major motivators, the model assumes the contribution of other variables. The model is only applicable where we have an organization-employee relation dominated by tradeoffs between pay and employee contribution. In instances where factors such as professionalism and work content contribute to turnover, the model can not be applied. The model limits the research to other variables that proportionately contribute labor turnover. The model also makes one have a perception that various forms of commitment may lead to turnover. The model offers a fixed view of the judgment to leave. March and Simon model does not focus on the process of labor turnover. Despite the model giving an insight to expected efficacy element, it does not strongly support the fact that turnover decision may result from an employee’s determination for extensive personal development.

Price and Mueller’s causal model

This model emphasizes on the imperativeness of analyzing the factors that lead to employees leaving an organization. Its strong emphasize on consideration of all determinant s makes the model differ from other models. The advantage of this model is that it provides a systematic and broad review of literature and pragmatic data on turnover. Despite the model focusing on numerous causal factors, it is criticized for having found a lot of relationships between some of the unsound pathways. In addition, despite the model using the hypothesis that turnover and absence were attributed to constructs of withdrawal, it has made little effort to discuss employee absence (Price & Mueller 1981, p. 128).

Strategies for labor turnover reduction

Stability and growth of any organization depends on its ability to hire and retain experienced employees. High turnover rates within organizations hamper organizational growth. Such organizations suffer high cost with respect to time spent in recruiting and training new employees. There are numerous strategies that organizations can use to reduce case of labor turnover. Some of them include offering employee compensations and benefits, recognizing and rewarding staffs, training, career planning and professional development, recruitment and orientation among others.

Compensation and benefits

Compensation and benefits acts as one of the strategies used by organizations in attracting and retaining experienced employees. The strategy is vital especially for retaining employees whose responsibilities within organizations are exclusive or requisite (Torrington, Hall & Taylor 2004, p. 421). It also helps in retaining those staffs that organization has spend a lot of money in training and equipping them with the necessary experience. Even though some scholars argue that for jobs that are not quite demanding as well as those that are simple and repetitive employers deserve to offer low wages, it reaches a time when organizations are compelled to offer competitive packages for all job categories. This is especially in a highly competitive labor market. Offering competitive packages to staffs make them understand that the organization is committed to their well being. Consequently, employees reciprocate by committing themselves to activities within the organization. As employees dynamically identify new priorities as being important, organizations also deserve to dynamically change their mechanisms of offering employee benefits to cater for these changes. Catering for these priorities will lead to employee satisfaction hence remaining with an organization (Guthrie, J. P., 2001, pp.80-190). Firm’s management team should appreciate the fact that employees have diverse needs.

As a result, there is need to tailor their benefits to these individual needs. Organization are continuously making innovation in the area of benefits bearing in mind the need for flexibility due to dynamic changes in employee needs. They offer a range of benefits from which their staffs are free to chose. This helps them have superior receptiveness to individual needs of their employees. It is one of the strategies that are significantly helping organizations reduce rate of labor turnover.

Recognition and rewards

increasing diversity in workforce demands a creative approach in aligning their rewards with specific job categories and groups of employees. Organizations use both financial and non financial, formal and informal as well as incentives in rewarding and recognizing efforts of their staffs. It is generally imperative to ensure that every employee within an organization has equal opportunity of receiving a reward. The reward should be something valued by the beneficiary employee. Recognition and rewards that are hard to obtain may de-motivate staffs leading to turnover. Employers ensure that they offer rewards that are strongly connected to organizational culture. Recognition and rewards ought to support and be consistent with organization culture. Rewards should always be in congruent with employees’ perception of the employer and the workplace. In instances where is poor relationship between employees and the employer, or where staffs do not trust the management’s intentions, it would be difficult for them to freely accept any introduced reward (Martin 2003, pp.91-412). Rewarding does not only entail giving financial incentives to employees. There are staffs who have confessed to have left their past organizations for not being appreciated or valued. It is imperative for employers to appreciate their staffs whenever they have done commendable jobs.

Career development

Firms should integrate employee training and career development as a strategy to retain employees. Organizations that train their staffs become more productive. As a result, staffs become loyal to them thus reducing their turnover rate. Well-developed training programs have been found to be instrumental in ensuring growth of upcoming companies. As every organization aims at retaining the skills required for its growth, training becomes the only way of attaining this objective. Training instills confidence on employees. Such employees are willing to face any challenges within the organization. Generally, training leads to work that is more inherently rewarding. As a result, staffs become satisfied thus sticking to the organization. As employees progressives get involved in training and professional development, they are introduced to more demanding and evocative positions thus encouraging them make long term commitments. Training can help in reducing labor turn over if it is integrated with measures aimed at tolerating employee growth and development. There are organizations that have ensured that there is a room for unskilled and semi-skilled employees assuming superior positions as they go on with their duties (Somers 1995, pp.9-58). This is through availing employer-sponsored training programs that promote individual and professional development. This makes the unskilled and semi-skilled staffs see the desire by the employer to retain all employees hence making it hard for them to quit after they gain the necessary experience.

Healthy workplace and well-being programs

It has been realized that establishment of programs that foster a healthy workplace and well-being of employees can facilitate in reducing turnover rates in organizations. Workplace stress and other psycho-social factors contribute to employees leaving organizations. This is the main reason why organizations are increasingly focusing on these factors in their effort to improve the working environment and ensure well-being of their staffs. Organizations have realized that staffs judge the well-being and health of a workplace based on psycho-social factors such as supervisors-employee relationships, interpersonal relationships among other methods of employee support. They have increasingly realized the essence of stress elimination at workplaces. Consequently, they are turning their attention to issues that lead to stress at workplaces. This has helped in improving interpersonal relationships, labor management and organizational profitability. With limited stress in organizations coupled with healthy supervisor-employee relation, many staffs are will to remain or join the organization (Thornhill 2002, pp.46-176). The strategy is helping organizations recruit and retain experienced employees.

Personal view of labor turnover

In as much as employees seek to make money, they also seek for comfort at workplaces. Inability by organizations to strike a balance between work and life of their employees contributes to high turnover rate. In organizations where staff spend most of their time at workplaces having no time to cater for their personal issues or attend to family responsibilities, employees tend to quit in big numbers. It calls for employers to ensure that they have availed time for their employees to cater for social matters. To help employees balance their family life with work consequently save organizations from experiencing labor turnover, it requires employers to come up with operation strategies. One of the viable strategies can be introducing shift work. For such strategy to be productive, employers ought to consult their staffs so as to tailor the shift work to employee needs. Staffs need to be informed about their shifts in advance to avoid inconvenience.

Organizations can be blamed for most of the labor turnover that occur. Despite people being well remunerated, some still leave and join organizations offering lower salary. It is important for organizations to clearly highlight their job descriptions and requirement when recruiting new staffs. Failure to clearly stipulate job description makes employees apply for such jobs. Some employees happen to be recruited in the company only to realize later that the job did not meet their preferences. This is one reason that leads such employees being frustrated. They leave these organizations and look for other companies despite them being offered competitive packages. This clearly reflects that employees barely rely on remuneration for comfort at workplaces. Giving clear information about job description can facilitate reduction of employee turnover.

In addressing turnover issues within organizations, employers have for many years assumed the role played by co-workers in influencing others to leave. This has cost organizations dearly. There is a common tendency by employees who had no intention of leaving organizations contemplate on leaving due to influence from co-workers. Some co-workers may be leaving due to genuine issues such as health problems or desire to develop. The more these staffs are positive in quitting one position and assuming another within the organization or leaving an organization for another may trigger the desire by other staffs to also leave. This is due to social pressure. Organizations that allow formation of unions faces limited labor turnover. This is because unions help in establishing a common ground where employers and employees meet and negotiate for employment terms. Labor turnover occurs because of employers failing to strike a deal with their employees. Most employees enter into employment terms only to perceive later that they were shortchanged by their bosses. Unions help in forwarding employee complaints to the employers and contribute in looking for a solution. They initiate dialogues and help in securing better working conditions for employees. Consequently, staffs get satisfied thus remaining in an organization.

Conclusion

From the literature review on labor turnover, it has been established that there are numerous factors that regularly contribute to turnover. Some of them include job satisfaction, intentions to quit, alternative job opportunities and organizational commitment. Despite remuneration contributing to labor turnover, it has not been established if this factor plays a significant role in all organizations. While using these factors can help employers ascertain the nature of turnover in their organizations, most of the mitigating strategies used by organizations are generally found to focus on specific problems affecting the organization. Understanding the trend in labor turnover and factors causing it helps organizations come up with successful mitigating measures.

Most of the available academic models of predicting and analyzing labor turnover prove to be weak. This is because the models analyze labor turnover based on a limited number of variables that contribute to it (Vandenberg & Nelson 1999, pp.313-1336). There is high demand by organizations to come up with models that use consistent variables in determining turnover rate and trends in all organizations.

Effective control of labor turnover lies on the ability of organizations to access both qualitative and quantitative data with respect to turnover rate in different categories of staffs within an organization. Being able to unravel the underlying factors leading to the turnover will help the management plan in advance or alter its operations to cater for these problems. Based on the nature of labor turnover and factors leading to it, organizations can use different strategies to control it. Some of the available strategies include compensation and benefits, recognition and rewards, healthy workplaces and well-being programs and training, career planning and professional development.

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