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1 Center for American Progress |  There Are Significant Business Costs to Replacing Employees
 There Are Significant Business Costs to Replacing Employees
By Heather Boushey and Sarah Jane Glynn November 16, 2012
Introduction
Implemening workplace policies ha benefi workers and help boos employee reen-ion is no simply a “nice” hing or businesses o do or heir employees. Mainaining a sable workorce by reducing employee urnover hrough beter benefis and flexible  workplace policies also makes good business sense, as i can resul in significan cos savings o employers. Tiry case sudies aken rom he 11 mos-relevan research papers on he coss o employee urnover demonsrae ha i coss businesses abou one-fifh o a worker’s salary o replace ha worker. For businesses ha experience high levels o urnover, his can add up o represen significan coss ha can poenially be avoided by implemen-ing workplace flexibiliy and earned sick days a litle or no cos a all.
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 Indeed, i is cosly o replace workers because o he produciviy losses when someone leaves a job, he coss o hiring and raining a new employee, and he slower produciviy unil he new employee ges up o speed in heir new job.
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 Our analysis reviews 30 case sudies in 11 research papers published beween 1992 and 2007 ha provide esimaes o he cos o urnover, finding ha businesses spend abou one-fifh o an employee’s annual salary o replace ha worker. (see Figure 1) Specifically, he economic sudies we examined reveal a number o paterns abou he cos o urnover:For all posiions excep execuives and physicians󲀔jobs ha require very specific skills󲀔across he remaining 27 case sudies, he ypical (median) cos o urnover was 21 percen o an employee’s annual salary.For workers earning less han $50,000 annually󲀔which covers hree-quarers o all  workers in he Unied Saes󲀔he 22 case sudies show a ypical cos o urnover o
 
2 Center for American Progress |  There Are Significant Business Costs to Replacing Employees
20 percen o salary, he same as across posiions earning $75,000 a year or less, which includes 9 in 10 U.S. workers.
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 Among posiions earning $30,000 or less, which includes more han hal o all U.S.  workers, he cos o replacing an employee is slighly less han among posiions earning less han $75,000 annually.
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 Te ypical cos o urnover or posiions earning less han $30,000 annually is 16 percen o an employee’s annual salary. Jobs ha are very complex and ha require higher levels o edu-caion and specialized raining end o have even higher urnover coss.
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 In one sudy, economis Eileen Appelbaum and soci-ologis Ruh Milkman find ha execuive posiions, which are well-compensaed and likely have sringen educaional credenial requiremens, have higher urnover coss han jobs wih low educaional requiremens.
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 Very highly paid jobs and hose a he senior or execuive levels end o have disproporionaely high urnover coss as a percenage o salary (up o 213 per-cen), which skews he daa upwards.Because some jobs have very high coss o urnover and ohers are less significan, here is a wide range o esimaes across all ypes o employmen. Above, we repored he “ypical” cos o urnover using he median among he case sudies. Tis means ha hal o he case sudies had a cos above wha is “ypical” and hal had a cos below. Te esimaes o he cos o urnover in he 30 case sudies analyzed here range rom 5.8 percen up o 213 percen, depending on he job and employee skills. Bu he esimaes are clusered around he “ypical” (median) values. Looking only a esimaes o he cos o urnover or workers earning, on average, $75,000 per year or less, 17 case sudies find a cos o urnover in he range o 10 percen o 30 percen. (see Figure 2) Te cos o urnover is an imporan economic issue because abou one-fifh o workers  volunarily leave heir job each year and an addiional one-sixh are fired or oherwise le go involunarily.
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 While workers who were laid off migh no be replaced a all, or oher kinds o workplace exis i doesn’ mater wheher an employee lef a firm volun-arily or wheher hey were fired󲀔he realiy is ha i will cos he firm o replace ha
FIGURE 1
Replacing employees is costly for companies’ bottom line
The cost of turnover is remarkably consistent across jobs at different pay levels, except the very highest-paid jobs, 1992 to 2007
0%5%10%15%20%25%All casesAll cases excluding physicians and executivesJobs paying$30k or lessJobs paying$50k or lessJobs paying$75k or less
Source: Author's analysis of 30 case studies on the cost of turnover from 1992 through 2007.
21.4%20.7%16.1%19.7%20.4%
 
3 Center for American Progress |  There Are Significant Business Costs to Replacing Employees
employee. In he long-erm, even i a firm saves money by firing an employee who has solen or has very low produciviy, in he shor-erm he firm mus address he coss o replacing ha worker  wih one who will perorm he  job beter han he one fired.Te Grea Recession sharply increased he share o work-ers involunarily leaving heir  jobs. A is peak in early 2009, he share o he oal labor orce subjec o wha he Bureau o Labor Saisics calls “layoffs and discharges”󲀔bu wha hose affeced migh reer o as “geting canned”󲀔was 2 percen, up rom 1.2 percen in 2006,  beore he recession began.
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 As unemploymen remained high, he recession and subse-quen recovery reduced he number o workers who volunarily lef a job. In 2011, 23.6 million workers󲀔or 17.9 percen o he oal workorce󲀔qui heir jobs, down rom 22.6 percen o he workorce in 2006.
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 Due o he collapse o he housing bubble and he ensuing economic recession, workers employed in consrucion especially experi-enced spikes in unemploymen and increased urnover raes. (see Figure 3)High qui raes are ofen due o  workplace policies. Te Bureau o Labor Saisics daa show ha he accommodaions󲀔including hoels and moels󲀔and ood-services indusries have he high-es volunary qui rae, wih 37 percen o employees reporing ha hey qui heir jobs in 2011, nearly wice as many as lef heir  jobs involunarily.
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 Tese are  jobs ha end o pay low wages and ofen have litle in he way o workplace benefis or policies o help workers address conflics  beween work and amily.
FIGURE 2
Across jobs, the cost of replacing an employee is clustered between 10 percent and 30 percent of an employee’s annual salary
Range of estimates of the cost of turnover from 30 case studies spanning 1992 to 2007
$0$30,000$60,000$90,0000%30%60%90%120%150%
Source: Author's analysis of 30 case studies on the cost of turnover from 1992 through 2007.
$10,000$20,000$40,000$50,000$70,000$80,000
Annual salary of employee
    S    h   a   r   e   o    f   a   n   n   u   a    l   s   a    l   a   r   y    t   o   r   e   p    l   a   c   e   e   m   p    l   o   y   e   e
FIGURE 3
Job losses by industry
Share of workers who quit or were involuntarily let go by industry, 2011
0%10%20%30%40%50%60%GovernmentState and local governmentManufacturingEducation and health servicesProfessional and business services*Construction*Trade, transportation, and utilities*Retail tradeLeisure and hospitalityAccomodation and food servicesShare of workers let go annuallyShare of workers quitting positions annually
Source: Bureau of Labor Statistics, Job Openings and Labor Turnover Survey - January 2012*
Correction, August 31, 2015:
 This figure previously contained some mislabeled data. The labels for professional and business services; construction; and trade, transportation, and utilities have been corrected in this version.
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