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Will A Higher Minimum Wage Spur More Effort to Lower Turnover?

Turnover rolls along at high rates and at a high cost to employers.  Rates run as high as QuitsPerMonth2007-201335% in the hospitality industry. Costs, according to research by SHRM, can be as much as “60% of an employee’s annual salary, whereas total costs of replacement, including training and loss of productivity, can range from 90% to 200% of an employee’s annual salary.”

It seems like the cost of turnover is like a dirty little secret no one wants to talk about.  Or do anything about.  Yet we are talking about literally billions of dollars a year in costs.

The year 2007 began with a quit rate of around 3 million employees per month.  That’s out of a labor force of about 150 million in the U.S.  During the subsequent Great Recession, when self-reported employee satisfaction rose and departures went down, 1.6 million employees still quit in the month of September 2009, the lowest number reported in years.  Since that bottom, the number of employees quitting has steadily grown to around 2.5 million per month.  There has been no indication that the one-time decline in quits would become a new normal.

Why do employers accept high rates of turnover and its hidden costs?  One reason may be that turnover allows employers to keep wage rates down.

I was at a conference a few years ago and found myself pitching programs to a C-level executive of a Fortune 1000 company that could improve the quality of his hiring, and thereby lower turnover.  He listened for a moment and then interrupted me, saying “Jim, you just don’t understand.  We like turnover.”  When I asked him to explain, he glibly answered “we hire them at $8 per hour, give ‘em a six-month raise to 10 bucks, and then hope they leave before we have to bump them to $12.  We then bring in their replacement at $8 and start the process all over again.”

Despite all the happy talk about employee satisfaction and engagement, how can employees find satisfaction in jobs where they are simply treated as “factors of production”, fungible commodities to be traded off for some illusory cost savings?

I believe that employers have an inherent commitment to help their employees find satisfaction in and through their work.  If you believe this way, then excessive turnover is an affront and should be addressed.

About The Author

Jim Robinson

Jim Robinson holds an MBA from the University of California, Berkeley and has extensive management and consulting experience. He managed a team with worldwide product, sales and support responsibilities at AMF before becoming an independent business consultant in 1996. Along with David Propis, he co-founded Hire-Intelligence, LLC in 2011 and today serves as CEO of the company.

One Response to “Will A Higher Minimum Wage Spur More Effort to Lower Turnover?”

  1. March 31, 2014 at 2:33 pm

    The title of your article seems to indicate that a higher wage will automatically reduce employee turnover. There are a lot of reasons for turnover within any organization to include issues such as opportunities for advancement, relationships with boss and coworkers, opportunities to use skills and abilities, providing a meaningful contribution, autonomy and independence, corporate culture and recognition to name a few. Money is down the list a little farther. If employers really want to reduce turnover, then they should concentrate on the first five issues listed above. Additional money is rarely the full answer.

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