Monday, August 3, 2015

Going for the churn: What do we know about labor market turnover in Southwest Utah?

by Lecia Parks Langston, Senior Economist

“It is said that employees don’t leave companies, they leave people.” Dale Carnegie

 Employee turnover can be expensive. Tally up lower productivity, loss of skills, training costs, and recruitment costs and pretty soon you’re talking about a good chunk of sometimes hidden expenses. On a broader level, some economists lament the recent slowdown in labor market churn suggesting less job swapping means the economy is now slower to reallocate labor to more productive uses. Analysts also suggest that lower turnover results in wage stagnation for employees who may accrue salary increases from changing jobs.
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In the past, tracking worker turnover was only possible at the national level. Local data was just not available. However, with the construction of the U.S. Census Bureau’s Local Employment Dynamics (LED) database, turn-over rates are accessible at the county level. These figures provide a fascinating portrait of labor market turnover in Southwest Utah and provide the opportunity for firms to compare their turn-over rates with industry averages.

Defining turnover 

In the LED database, job turnover is defined as the rate at which stable jobs begin and end. It is calculated by summing stable hires in the applicable quarter plus stable separations in the next quarter, then dividing that total by the average stable employment of both quarters. (Stable jobs lasted at least one full quarter with a given employer.) While this may not be the perfect formula for turnover because it catches growth and contraction changes as well as turnover and incorporates some seasonal employment, it does provide a reasonable measure of labor market churn.

The big picture

Turnover rates have trended downward in Southwest Utah since 2000. The rate measured highest in early 2000 at almost 15 percent and hit its lowest point in 2011 at about 10 percent. This pattern reflects national and state trends. In other words, during the past decade and more, the labor market experienced less job swapping.

This slowdown in labor market churn can at least partially be traced to changing age demographics. While young people are most likely to change jobs, workers close to retirement are least likely to make an employment switch. Therefore, as the baby boom generation ages, one would expect less overall churn in the labor market. In addition, those most likely to job swap, 16-24 year-olds, have curtailed their labor market participation since 2000 also putting a damper on turnover rates.

Within the long-term Southwest Utah turnover trend rates lurks a cyclical pattern. Turnover rates increased during the economic upswing when employment choices were abundant. In contrast, turnover rates dipped more rapidly during recessionary periods as worker opportunities dried up. Also, remember that the nature of the LED turnover calculation tends to overstate the effect of the business cycle as job hires and separations resulting from growth and contraction are counted—not just those resulting strictly from “turnover.”

Turning to wages

Did the wages of hires move in tandem with turnover rates? Did higher turnover mean higher wages? In Southwest Utah (and the state in general), hire wages for stable jobs display little correlation with turnover rates except as both reflect the business cycle. Even when adjusted for inflation, average wages have trended upward since 2000 in Southwest Utah, while turnover rates have trended down.

 How do industries stack up?

Turnover rates by industry in Southwest Utah provide few surprises. Average turnover rates for the most recent four-quarter period available show the industry encompassing temporary help services (administrative/support/waste management/remediation) with the highest turnover rate in the region (19 percent). Other high-turnover industries include leisure/hospitality services, construction and retail trade. These industries are either seasonal, lower-paying or both. Industries with the lowest turnover rates are public administration (government), educational services (including public sector schools) and utilities. Public sector jobs tend to be stable with good benefits while the utilities industry pays high wages.

Statewide, the largest firms and the oldest firms understandably show the lowest turnover rates. In Southwest Utah, older firm age also equates with lower turnover rates. Firms in business less than a year most recently show a 22-percent turnover rate compared with 11 percent for firms 11 years and older. However, firm size shows little correlation with turnover rates in the region. Using the most current four quarters of data, firms with 250 to 499 employees displayed the highest turnover (14 percent), while the largest firms registered the lowest rate (11 percent). Firms under 250 showed little variance in turnover.

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Job swapping rates by county

Due to its large population, Washington County dominates the turnover rates of Southwest Utah. For the most recent four-quarter period, Washington County’s turnover rate clocked in at 11 percent. Garfield and Kane counties with their high concentration of leisure and hospitality industry jobs, showed the highest turnover rates (13 and 12 percent respectively). Iron County’s rate registered 10 percent, while Beaver County showed the lowest turnover in the area at 8 percent.

Click here to explore turnover rates in Southwest Utah.