Most businesses today are facing an unprecedented shortage of skilled labor, so it is more important than ever to retain existing employees. Manufacturers have been hit particularly hard. One reason for this: When the COVID-19 pandemic caused most schools to shift to a remote model, enrollment in many vocational programs — where hands-on learning is essential — declined sharply.


Company management may be reluctant to devote already scarce resources to employee retention, but it is important to consider how much it costs to lose employees. In a recent study, the Society for Human Resource Management estimated that the average replacement cost of a salaried employee is six to nine months' salary. So losing an employee earning $50,000 per year, for example, will cost approximately $25,000 to $37,500, in addition to the replacement person's salary. Other estimates are even higher, especially for executives or other highly paid employees.

Some of the costs of employee turnover are apparent, such as those associated with advertising a position, screening and background checks, interviewing applicants, headhunter fees, and training and supervising new hires. In addition, a company may temporarily lose productivity and efficiency while a new employee is learning and training. Additional costs are less obvious, such as the cost of overtime or temporary help needed because of staff shortages, or the negative impact on company culture or morale.

Related Read: Managing the Rising Cost of Labor


Employee turnover also can affect product quality — a significant hidden cost. A recent study, "The Hidden Cost of Worker Turnover: Attributing Product Reliability to the Turnover of Factory Workers", found a direct link between worker turnover and product reliability. The authors of the study partnered with a major smartphone manufacturer, tracking failure rates for 50 million phones over a four-year period. They were given access to data that allowed them to trace units that required replacement or repair and cross-referenced this with staffing information for those dates and locations.

The authors found, among other results, that each 1% increase in the weekly turnover rate increased the product failure rate by 0.74% to 0.79%. This finding confirms that products are more reliable when the workforce is more stable.

Related Read: Labor Shortage: How Manufacturers Can Attract and Retain Qualified Workers


Given the shortage of skilled workers and the substantial cost of employee turnover, manufacturers can reap significant benefits by investing in their existing workers. This may include increasing salaries and bonuses, improving benefits, offering flexible schedules, enhancing the culture and camaraderie to keep employees feeling connected or providing training and upskilling opportunities to support employee personal growth. In most cases, the benefits of a stable workforce will outweigh the cost of higher wages, better benefits and improved working conditions.

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