Theodore, Weber / SMALL MANUFACTURERS
younger, less experienced, and nonunionized workers are more likely to voluntarily leave jobs or be fired. More educated workers are also more likely to be job leavers although for a different set of reasons.
In addition to employee characteristics, job quality encourages or discourages turnover. A study (Holzer & LaLonde, 1998) of both manufacturing and service employment found that “the charac- teristics of the jobs to which less educated workers have access, including starting wages, occupa- tions, and industries, seem to affect their turnover rates independently of personal characteristics” (pp. 24-25). Another study found that businesses that pay higher wages experience less turnover (Regenstein et al., 1998). Employers whose entry-level employees stay for an average of 2 years are also more likely to report that their establishment provides health insurance, paid sick leave, and paid vacation. Another study of manufacturing employees found that total compensation (including monetary awards such as merit raises and benefits) substantially reduced voluntary turnover (Lust & Fay, 1989).
Thus, not all manufacturers experience high turnover. Those establishments that approximate the high performance model described earlier are less likely to have problems with employee reten- tion (Jenkins & Florida, 1999). In such companies, employees are likely to be given opportunities for advancement and on-the-job training, two other factors that are highly correlated with retention (Lynch, 1993). A study of 30 steel minimills found that firms with commitment-oriented human resource systems, which allowed workers more discretion in carrying out their job tasks and involvement in managerial decisions, experienced less turnover than did firms with control- oriented systems in which emphasis was placed on compliance with specified rules and procedures (Arthur, 1994). The commitment-oriented firms did not pigeonhole employees into narrowly defined jobs and allowed them significant voice in defining job tasks. For job retention to be benefi- cial to the worker in the long run, employees must have career advancement opportunities within the organization, and employers must be willing to train and advance their low-skilled workers to more highly skilled positions rather than hire from outside (Brown, Ganzglass, Golonka, Hyland, & Simon, 1998).
. . . not all manufacturers experience high turnover. Those establishments that approximate the high performance model described earlier are less likely to have problems with employee retention.
What are the implications of high rates of turnover? Some believe that turnover is a sign of a healthy economy in which workers have many opportunities and employers have the flexibility to hire the best workers (Ryscavage, 1995). However, there are costs to high turnover as well. When employers experience difficulties finding qualified replacement workers, turnover can raise the cost of both recruitment and operations because employers must pay costly overtime or hire less productive temporary workers. A study of turnover among entry-level staff estimated costs ranging from 25% to 50% of a worker’s annual pay (Coopers & Lybrand, 1997). The study found that most of the turnover cost, about 85%, is related to productivity losses. Costs are highest in work teams or manufacturing line situations in which an employee’s work performance is likely to influence other employees. Also, it is more difficult to replace employees with firm-specific skills.
Job insecurity is a serious problem for workers as well. Income growth, benefits, and promotion are typically attained through stable employment. A lack of tenure can limit future employability because employers may be wary of an employee with an unstable work history. There is some evi- dence that short and erratic spells of work could disadvantage individuals seeking work. Whereas earlier studies found that young workers’ income increased with each job change, more recent work demonstrates that in the longer term, job instability has a negative effect on wage growth (Bernhardt et al., 1998 and 2001) and benefits (Gladden & Taber, 1999; Regenstein et al., 1998). These findings may be due to the fact that during earlier periods, job changes were less frequent and were related to skill development.
A lack of turnover, however, may imply that employees are bypassing better job opportunities or that the market presents them with few opportunities for advancement. When other, better jobs are available, staying at a lower-level job imposes opportunity costs of forgone alternative employ- ment. It often is in the interest of employees, after entering the workforce and establishing a stable work record, to search for jobs with better opportunities and rewards. Too often, however, high turnover actually prevents career progression as workers cycle in and out of poorly paid, dead-end jobs (Rogers, 1995; see also Holzer, 1999). For many job seekers, career progression is halted shortly after it begins.