Economy Emboldens Employees Who Head for Greener Pastures

February 04, 2015

Turnover rate continues to rise as employees are emboldened to look for new opportunities in an improving economy.

From 2009 to 2011, employers had the upper hand with respect to employee retention, especially in places like southern Illinois and Missouri. "Everyone said, 'I'm just happy to have a job, I'm not going to complain,'" said Phil Brandt, CEO of St. Louis-based AAIM Employers Association. He regularly hears from executives of his organization's more than 1,800 member business which range in size from 40-employee companies to Fortune 50s. Employers "could be on the short side of cost of living, if any type of adjustment to salaries were done at all," he said. As for a focus on employee engagement and satisfaction, forget it.

There's no forgetting them now.

According to the ADP Workforce Vitality Index which measures workforce dynamics such as job growth, wage growth and turnover across a range of industries – turnover rate – a measure of employees who leave one job for another is on a sharp rise. From a national average of just under 5.6 percent in the third quarter of 2011, the number now sits at about 6.3 percent.

Turnover is a metric whose impact depends on circumstances. When the economy is slow, people could be losing their jobs and replacing them with something that pays less and possibly also only offers part-time hours. But when the economy is growing, as it has been, turnover can mean more of a sellers' market, in which employees see more and better opportunities. The result can be pressure on wages to retain or replace employees and growing costs of recruitment, training, and retention.

Turnover rates vary widely by geographic region, as the Vitality Index shows. Employers in the Northeast currently see a national low of 4.6 percent, compared to the South, where turnover is 7.3 percent. Companies with more than 1,000 employees have a 6.3 average rate for prime-age workers, versus about 5.4 percent at companies with fewer than 49 employees.

Driving the variation in turnover rates are a number of factors, including different mixes of industries and demographic differences. For example, the South's higher turnover is due in large part to a high number of recently-added jobs in the leisure and hospitality industries.

As the economy has picked up, so have opportunities for workers. "We interviewed people four years ago and they said, 'I don't want to risk it,'" said James Wright of staffing company Bridge Talent. "Now they're saying, 'I'm interviewing in four places or I've seen 20 jobs that are a match for me.'"

Turnover could affect companies in ways they're not yet expecting. "The higher the skilled position, the more turnover is likely because those people have more opportunity," said Ira Wolfe of Success Performance Solutions, which provides pre-employment testing and consultation. That can have an impact on the value employees can bring over time and, therefore, talent management.

In addition to higher turnover, general economic growth may translate into greater demand on businesses and, ultimately, a growing need for additional employees. This may mean more cost and complexity associated with increased recruiting and training. A stronger focus on talent management and employee engagement, processes to handle new employee and legislative requirements, and a focus on available employment tax credits and incentives may be wise strategies for companies in this higher job turnover environment.

Whatever combination of approaches makes sense for a company's resources and goals, it's clear that many businesses should reevaluate their HR strategy and procedures. Becoming more efficient in hiring, improving talent management, offsetting increased costs and employment-related legislative pressures and better directing a human capital management plan will help companies treat human resources as a vital competitive tool.

About the Report: The ADP Workforce Vitality Index is a comprehensive, quarterly measure of U.S. workforce dynamics that looks at key labor market indicators, such as employment growth, job turnover, wage growth and hours worked. This report yields deeper insights into workforce dynamics and trends than previously available.

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For media inquiries about the ADP Workforce Vitality Report, please call 201-400-4583 or email Allyce Hackmann.