New research shows ‘Job Lag’ is costing the economy six billion each year

November 5th, 2014

Job Lag is costing the economy over six billion dollars each year due to poor recruitment practices and staff turnover cost close to 50 per cent of an annual salary, 20 per cent more than previously thought according to a new study. In response, a ‘world first’ program was launched today by the Assistant Minister for Employment the Hon Luke Hartsuyker to help new employees Hit The Ground Running and save Australian business millions of dollars in turnover costs.

Research released today, supports the launch of the world’s first employment program to help people from disadvantaged groups find jobs through employers who have committed guaranteed roles. The ‘Hit The Ground Running’ program (HTGR) by Job Futures was designed specifically to reduce Job Lag and provide an economic model that will assist disadvantaged Australians and the long term unemployed achieve sustained employment. The first candidates will graduate today with immediate employment opportunities in long term positions that offer real career paths.

The report author, Dr Tim Baker, says that the landmark new research shows that we have previously underestimated the costs associated with staff turnover and that without changing the way we recruit people, we could have one of the least productive workforces in the world. Baker, who is an employment academic, published the paper today in conjunction with Job Futures, Australia’s largest Not-For-Profit (NFP) member organisation of Government employment services providers. “We need to change the way we train, induct and support new employees or businesses will fail to meet not only the employment needs of their companies and industries but also struggle to compete in a worldwide marketplace.”

The new research looks at employment practices and provides leadership for Australian business. No previous research has been done within the Australian context across all sectors. The research has also led to the creation of a new cost model to calculate the total costs of staff turnover, which until now had underestimated the scale of the issue because previous models were incomplete. The new model is called ‘Job Lag’.

Key findings of the report:

Job Lag until now has been a largely intangible cost to business of a replacement employee reaching optimal productivity. Optimal productivity in this context can be defined as the point at which an employee is fully contributing the level of output that is expected of an established worker in that role.
The calculated financial burden of Job Lag is costing Australian business six billion dollars per year and an average of $38, 833 per employee or 51 per cent of the annual wage.
The new model of measuring Job Lag is a significant step forward in calculating the costs of staff turnover which until now, was only estimated at being one third of an employee’s wage and had never had an Australian context.
There are seven tangible and six intangible costs associated with employee turnover. Tangible costs of employee turnover are: screening, interviewing, testing, wages, training, orientation and technology. Intangible costs of employee turnover are productivity loss, a new employee learning curve, increased supervision, intermediate costs during the recruiting process, increased stress on remaining employees resulting in decreased productivity, and the employee’s reduced productivity immediately prior to his or her (in) voluntary termination.
Apart from a new employee’s background, other critical variables included in the cost of Job Lag are the industry and the size of the organisation, the reasons for termination, the capabilities, aptitude, support and the nature of the work itself are additional factors influencing optimal productivity.
The research paper highlights the benefits of good induction training to offset the high levels of vulnerability of a new employee during the first few weeks of their new job to reduce Job Lag and reveals the impact of poor induction training that increases the risk of turnover and costs.
By redressing the current underestimation of the size of the Job Lag problem as a key factor in the costs of employee turnover, businesses may start to change the way in which they both calculate the costs of employment issues and change employment practices to reap the benefits.
A change in employment practices to reduce costs will increase productivity and profitability. This scenario will benefit new employment and retention rates, which is good for individuals, communities, and the economy.
To calculate Job Lag: The period of time from notice of termination to actual termination + the time it takes to replace the terminated employee + the origins of the replacement employee + the time it takes for the new employee to reach optimal productivity = Job Lag.
The Hit the Ground Running program was specifically designed through research to reduce Job Lag amongst the groups that have the highest rates of Job Lag. They especially work with hardest hit groups in the unemployment race and give them the skills, integration, acclimatisation, mentoring and support from long before they take up roles to long after they have been employed. The fact that these practices are being used to help organisations that face high turnover and associated Job Lag in an effort to reduce costs is a significant first for the industry and the country as a whole. It should and will become the best practice model for employment in these industries.

Research paper: Job Lag, The Costs To Australian Employers Of Reaching Optimal Productivity For Semi-Skilled Workers by Dr Tim Baker, 2014, Brisbane Australia: Pages 16. A downloadable copy of the paper can be found here (only available under embargo until 5^th November) or by going to the job Futures website www.jobfutures.com.au or www.hitthegroundrunning.com.au

About Job Futures: Job Futures is Australia’s only national network of community based, Not-For-Profit (NFP) organisations and are one of the country’s largest providers of employment, training, disability and welfare services. Dedicated to changing lives and strengthening communities, we assist over 52,000 disadvantaged Australians annually and place around 40 people into work each day through our Five Star rated services.

For further details contact:

Stieve De Lance, Tel: 0431 139 681, Sdelance@reputationaustralia.com.au

Interview opportunities: Report author, Dr Tim Baker, Matt Little, CEO Job Futures