Monday, August 3, 2015

Going for the churn: What do we know about labor market turnover in Central 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) data base, turn-over rates are accessible at the county level. These figures provide a fascinating portrait of labor market turnover in Central 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 Central Utah since 2000. The rate measured highest in early 2000 at almost 13 percent and hit its lowest point in 2010 at about 8 percent. This pattern reflects national and state trends. In other words, during the past decade and more, the labor market has shown 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 Central 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 Central 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 Central Utah, while turnover rates have trended down.

How do industries stack up? 

Turnover rates by industry in Central Utah provide few surprises. Average turnover rates for the most recent four-quarter period available show accommodation and food services with the highest turnover rate in the region (19 percent). Other high-turnover industries include construction, real estate, arts/recreation/entertainment and retail trade. These industries are either seasonal, lower-paying or both. Industries with the lowest turnover rates are public administration (government), finance/insurance, educational services (including public sector schools) and utilities. Public sector jobs tend to be stable with good benefits while the utilities and finance/insurance industries pay higher than average wages.

 Statewide, the largest firms and the oldest firms understandably show the lowest turnover rates. In Central Utah, older firm age also equates with lower turnover rates. Firms in business less than a year most recently show a 24-percent turnover rate compared with 9 percent for firms 11 years and older. However, firm size comparisons provide one surprise in Central Utah. Using the most current four quarters of data, firms with 250 to 499 employees displayed the lowest turnover (6 percent), while the largest firms registered a rate of 9 percent.

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Job swapping rates by county

The two counties in Central Utah most dependent on seasonal tourism, Wayne and Piute County (15 and 10 percent respectively), also showed the highest turnover rates. Sanpete (9 percent) and Sevier (8 percent) both registered lower turnover than Utah in general, while Millard County, with its large utilities employer, experienced the lowest turnover in the region with a rate of 7.5 percent.

Click here to further explore turnover rates in Central Utah.