Overworked managers then leave or ask to be demoted. Understaffing is common, which causes even more problems and creates anxiety for employees and their managers. Inevitably, these companies don’t trust their frontliners to do a good job and design the jobs for interchangeable pairs of hands rather than humans with brains, wasting so much talent and potential along the way. Managers are always fighting fires, never having enough time to hire and train well. Furthermore, when companies are in this cycle, they end up making many interrelated decisions that weaken their system. When pay is low, companies end up in their own vicious cycle: High turnover hurts company performance, ensuring that pay stays low and turnover stays high. Read More: Return-to-Office Full Time Is Losing. Not to mention the lost sales from shutting down stores-recall the signs that went viral during the pandemic asserting, “we’re closed because we all quit.” But those costs pale in comparison to costs from the inevitable poor operational execution that takes place when there is high turnover: lower sales from mistakes, slow service, and customer dissatisfaction high product costs from more errors, overtime costs, and reduced labor productivity. We worked with one company whose replacement costs were 45% of payroll because employees had to be licensed. Many executives I’ve met didn’t think costs of turnover were high enough to justify higher pay-but they had never even quantified the full costs of turnover to begin with.Īt most companies with which Good Jobs Institute has worked, employers are pouring the equivalent of 10 to 25% of their labor budget on replacement costs-the costs to recruit, train, and reach baseline productivity, only to start all over again when employees leave. In low-wage settings including senior living, call centers, warehouses, retail stores, and restaurants, we have seen some companies replacing their entire frontline workforce annually, with more than 100% employee turnover. Low pay drives high employee turnover, including for K-12 teachers. In my research and work with more than two dozen companies at the nonprofit Good Jobs Institute, I’ve seen that companies, too, pay a steep price for low pay. As a result, they find themselves stuck in a vicious cycle: low pay hurts their performance, which keeps them stuck in low paying jobs. Juggling multiple jobs and not being able to meet obligations increases stress, undermining mental and physical health and cognitive functioning, which leads to more errors and less reliable attendance. Low and inconsistent pay wreak havoc on workers’ lives, leaving no margin for emergencies or unexpected expenses. But for more than 50 million Americans who work in low-wage jobs, pay matters a lot-more than those of us who make higher wages may think. There’s a lot more to a good job than making money.
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