Job-switching puts firms on training treadmill
One after another, employees at New Hampshire manufacturer W.H. Bagshaw said goodbye.
One went to a robotics company in nearby Boston. Another became an electrician’s apprentice. In all, 22 workers have left W.H. Bagshaw in the past two years — no small matter for a company that has a workforce of fewer than 50. That level of departures was also far from normal: In 2019, the company lost just one or two employees; the turnover rate in 2022 was more than 30 percent.
W.H. Bagshaw, which makes precision machined parts for the aerospace and medical industries, was mostly able to replace the workers who left — but at a cost. Hiring employees and bringing them up to speed could include teaching them how to operate complex, multi-axis turning machines. That took time and energy, preventing the company from running at full capacity.
Production slowed. The number of on-time deliveries to customers slipped.
“It’s taking longer to get stuff out the door,” said Adria Bagshaw, the company’s vice president.
A hallmark of the pandemic era has been the surge in employee turnover. Since 2021, an extraordinary number of Americans have been quitting their jobs — some flexing their power in a white-hot labor market, others reevaluating their priorities amid a destabilizing pandemic.
In November 2021, more than 4.5 million workers voluntarily left their jobs, according to government data, the most in the two decades that the government has been keeping track. That number has slowly been declining in recent months, but it is still far higher than before the pandemic. The churn has been particularly high in low-wage sectors such as leisure and hospitality, where intense competition for labor led workers to pursue better-paying opportunities.
All that turnover has taken a toll on productivity — for individual companies, and perhaps for the economy as well.
Economists say the wave of job-switching could be one factor in the weak productivity growth that the U.S. economy has experienced in recent years.
Productivity falls
Early on, some experts expected the pandemic to unleash productivity by forcing companies to embrace new technologies and ways of working. Instead, productivity has fallen slightly over the past two years.
“All that turnover, all that hiring, all that training you have to do — that takes away from your day job,” said Sarah House, an economist at Wells Fargo. “So it’s essentially less output at the end of the day.”
At W.H. Bagshaw, the perpetual need to train employees has been a central reason for the production slowdown.
“Anytime we bring in a new hire, they’re not productive on Day 1 — usually they’re shadowing someone for a few weeks or months,” Bagshaw said. “You’re investing in someone for the future. Whoever is doing the training, they’re slowed down from their normal productivity.”
Productivity — in its simplest form, the value of the goods and services that a typical employee can produce in an hour of work — is notoriously difficult to measure accurately. But it is one of the most important measures of the health of an economy, particularly during a period of rapid inflation. Productivity is what allows the economic pie to grow: If workers can produce more in the same amount of time, then their employers can afford to pay them more per hour without either raising prices or cutting into profits.
When productivity stagnates, however, pay becomes a zero-sum game: If workers want to make more money, then the money has to come from somewhere else.
“Really the issue at the heart of everything — from inflation to growth to companies and head count — it’s about productivity, and that turnover concern is huge,” said Nela Richardson, chief economist for ADP, a payroll processing firm.
Used to be positive
Ordinarily, economists consider turnover good for productivity. A healthy amount of jobswitching allows workers to find the most suitable jobs, and employers to find the employees who will be the best fit.
Over time, the most productive firms — which can afford to pay the most — will tend to attract the most productive workers, lifting the economy as a whole. In the years before the pandemic, many economists fretted about the declining rate of turnover, which they worried was a sign of an increasingly stagnant, even ossifying labor market.
But the impact of the Great Resignation is complicated: Too much turnover all at once can create its own problems.
For nearly two years, companies have complained that they are caught in an unending cycle of hiring and training workers, only to see them leave in a matter of weeks or months. Constant recruiting and training drains management resources, and new hires often do not stick around long enough for that investment to pay off. Veteran employees are often asked to pick up the slack, leading to burnout.
These challenges have been on vivid display in the hospitality industry, which experienced muchhigher-than-normal turnover rates in this period.
“A lot of restaurants are in survival mode, and survival mode creates a vicious circle,” said Dominic Benvenuti, an owner of Boston Pie, which owns more than two dozen Domino’s locations in New England.
Store managers can’t hire enough workers, Benvenuti said, so they demand too much from new employees too quickly, sending them out on deliveries or putting them to work in the kitchen without sufficient training. When those workers inevitably fail, they quit, compounding the labor shortage and continuing the cycle.
“They are thrown into such chaos and stress that it overwhelms them, and they leave,” he said. “It is never-ending if someone doesn’t end it.”
The solution, Benvenuti said, is to focus on training and to recognize that new hires won’t be as productive as 10-year veterans right away. But that is easier said than done when customers are calling to ask why their pizzas are late.
Many economists say it is still possible that the pandemic-era increase in turnover will be beneficial for productivity, even if that isn’t the case yet. People who thrive working from home will gravitate toward companies that embrace remote work; people who do better in person will be snapped up by companies that require employees to come into the office. Industries that remade themselves to survive the pandemic — such as restaurants, retailers and hotels — will figure out which changes will work in the long term, and which employees are well-suited to the new way of doing business.