Bracing for a Higher 'Quit Rate'
Given the current focus on hiring experienced candidates from outside the organizations, employers would be wise to make retention practices a higher priority.
By Peter Cappelli
I've spent a lot of time in San Francisco this fall, and my Wharton executive students out there are focused on one thing: negotiating salaries. Why, given that they already have jobs? Because the market in that region is red hot, and not just for quirky IT skills. Employees there – including my students -- are either jumping from company to company or renegotiating salaries at their current employer.
That leads us to the recent Bureau of Labor Statistics release from the Job Openings and Labor Turnover Survey, or JOLTS. (These are data collected from employers for the country as a whole and are different from the typical unemployment announcements.)
Nothing much looks different in the most recent JOLTS data, which are from August 2013, except for one thing, and that is the quit rate -- or what we know as voluntary turnover.
Hiring isn't up much and layoffs are down a bit over the previous year, although the latter always increases at the end of the summer. But job openings are up over last year, around 10 percent. While the quit rate had been holding reasonably stable, it jumped about 20 percent in August over the previous month.
That increase is spread across many industries but seems to be especially prominent in financial services, healthcare, education and retail trade. The fact that the quit rate is spread out across industries means it may be more durable, and the fact that it is in services may be because such employees find it easier to move across employers. Who knows whether a one-month jump will continue, but it's worth keeping an eye on because the change will indeed come.
Remember all of those surveys during the past few years showing that a majority of employees reported that they would look for a new job the moment the labor market picked up? Those people haven't suddenly gotten over it. Many of them feel they were pushed too hard by employers in the downturn and continue to be squeezed even after business and profits picked up again. They may be wrong, but the belief that things are better elsewhere is hard to shake, as is the psychological need to get out of a situation that has soured on them.
Here's the other reminder about voluntary quits: Virtually everyone who does quit a job immediately moves into another. Employees rarely quit and then go home and pout. They can't afford it. So they wait until they've actually gotten another job before leaving.
These factors suggest a new normal after the recession: the reluctance to hire anyone who is unemployed, especially the long-term unemployed, and the strong preference even now to hire people who are currently doing the same job someplace else. Assuming this pattern continues, any uptick in hiring will lead to big increases in the quit rate.
Why? Because my new hire becomes your voluntary turnover, and then you fill your new vacancy by hiring from the outside, which creates a voluntary quit someplace else, and so forth. A single opening creates a cascade of voluntary turnover across the economy. Note that it also does nothing to help the unemployment rate. We are simply moving employed people around from one job to another.
So what does this mean for the HR profession? Increasing retention problems are inevitable, given this current focus on hiring experienced candidates from outside. It seems to have picked up, and the quit rate has jumped as well. So perhaps this is a good time to alert the big bosses that you are about to have a retention problem. It's one of the few HR issues that gets on the dashboard of line executives, and you could look really smart calling it before they notice.
Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School. His latest book is Why Good People Can't Get Jobs: The Skills Gap and What Companies Can Do About It.