More than century ago Henry Ford made an unusual offer. He guaranteed pay $5 per day (around $150 per day in today’s dollars) for eight hours of assembly line work for all workers at his production plant. At the time the offer was surprising and created a lot of hype. It was quite generous, roughly doubled workers’ pay. It went against common wisdom—labour is abundant, you could fire and replace workers in no time. Ford had his own views, based on the issue he faced. Ford standardised products and production processes at plants. The workers were not, turnover was high, and quality of products varied. Generous wage offer aimed at reducing workers turnover and maintaining this hidden human capital. Arguably, it paid off in a long run.
Century later economists got data to confirm Ford’s intuition and quantify the hidden cost of worker turnover. Recent article in Management Science “The Hidden Cost of Worker Turnover: Attributing Product Reliability to the Turnover of Factory Workers” combined data on weekly workers turnover at major electronic producer plant, and data on field failures of their electronic products. Result? For Each percentage point increase in the weekly rate of workers quitting from an assembly line, field failures increase by 0.74%–0.79%. These extra failures could total to striking 10.2% in the high-turnover weeks following paydays. The associated costs amount to hundreds of millions of U.S. dollars.
The issue seems to be even worse in new sectors economy, knowledge based. Search Cloud provider Sinequa published findings from a survey of 1,000 IT managers at large organizations in the UK and US to explore the impact the Great Resignation has on employee experience, productivity, and organizational risk. It showed that 64% felt that their organization already has experienced loss of knowledge due to people leaving the company. There is a concern that turnover could have a cumulative effect—56% of surveyed managers agreed it will hurt the organization’s ability to onboard new employees. Hidden human capital is not that visible, highly underappreciated, and could be quite costly to replace.
If data are not persuasive enough, here is a nice meme on newbie dealing with legacy products.