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Firms with young workers experience more turnover than those with older workers. Photo: iStock
Firms with young workers experience more turnover than those with older workers. Photo: iStock

What drives attrition across companies

Workers who have low costs and high benefits from moving are more likely to separate from their firms during their careers

Mumbai: Across the world, high employee turnover— the rate at which employees leave and are replaced—is a major challenge for firms in different industries. High turnover can be problematic for several reasons: it could increase recruitment costs, affect worker morale and lower productivity. Understanding the source of employee turnover, therefore, is an important first step in addressing these issues.

To help do this, a new National Bureau of Economic Research working paper by Edward P. Lazear and Kristen McCue quantifies the characteristics of employee turnover in the US. The authors use numbers from the US’ Quarterly Workforce Indicators and Job Openings and Labor Turnover Survey data and find that permanent differences in employer-specific turnover rates account for 36% of variations in the labour market.

Some sectors will naturally have more turnover than others. The authors show that the leisure and hospitality sectors in the US experience turnover rates of more than double that of manufacturing. However, even after accounting for these differences, there are employer-specific characteristics that contribute to turnover. These characteristics include the profile of workers employed in firms. The authors find that firms with young workers experience more turnover than those with older workers. The authors argue that workers who have low costs and high benefits from moving are more likely to separate from their firms during their careers. This may explain why turnover is greater among workers with higher education and unique skill sets.

Unsurprisingly, the study also finds that steadier, high-paying occupations experience less turnover, while occupations with wage volatility experience more turnover

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