Walking Assets: The Cost of Losing an Employee

Abstract

A large part of the research on employee turnover has focused on its causes rather than on its consequences. While such focus has yielded some fruitful literature for HR management, the impact of this employee behaviour on organizational finances remains underdeveloped. The link between decisions at individual level and firm financial variables needs to be supported by empirical evidence. Previous studies on the consequences of employee turnover are by and large based on very particular industries, such as health care and lodging. The question of how much resources should be utilized in preventing turnover over other goals is still open. Ultimately, the answer to this question will assist managers in their strategic allocation of scarce organizational resources. In the following paper, I study the costs of voluntary employee turnover for the firm. In particular, evidence from a knowledge-intensive manufacturing firm is used to estimate the costs of engineer turnover. Data was collected from company records and interviews with HR personnel and managers. The findings indicate that employee turnover is indeed a costly phenomenon, in line with findings in the health care sector. By far the largest single cost for the firm is the productivity loss. This indicates that for positions which involve complex tasks and prolonged learning times, turnover is particularly costly. The implications for practice and research are outlined.

Keywords: Employee turnover, strategy, costs of turnover

JEL Classification: M51, J63