IB Business Management HLTopic 2 — Motivation and DemotivationPaper 1 & 2Core skill~8 min read
Labour Turnover and Why Staff Leave
Labour turnover is the number that quietly tells you whether everything else in this topic is working. Leadership, pay, training and culture are all opinions until you look at how many people walked out the door last year — and that is a figure you can calculate in about ten seconds.
📚 What you need to know
Labour turnover measures the proportion of employees who leave during a period, as a percentage.
Labour retention measures the proportion who stay. Turnover and retention always add up to 100%.
Internal causes include poor management, weak recruitment and low pay. External causes include a booming local economy and better transport links.
High turnover creates problems (recruitment, induction and training costs, lower productivity) but also opportunities (fresh skills, new ideas).
Some turnover is healthy. A rate of zero usually means nobody can afford to leave.
The two formulas
Labour turnover
(number of staff leaving ÷ total number of staff) × 100
Labour retention
(number of staff remaining ÷ total number of staff) × 100
WORKED EXAMPLE
A hotel employed 180 staff last year, of whom 27 left. Calculate the labour turnover and the labour retention rate. (3 marks)
Step 1: turnover(27 ÷ 180) × 100 = 15%Step 2: staff remaining180 – 27 = 153Step 3: retention(153 ÷ 180) × 100 = 85%Turnover 15%, retention 85%Check yourself instantly: 15 + 85 = 100. If your two answers do not add to 100, one of them is wrong.
WORKED EXAMPLE
The hotel estimates that replacing one employee costs $2,500 in advertising, interviewing and training. Calculate the annual cost of its turnover. (2 marks)
Step 1: number of leavers27 leaversStep 2: multiply by the replacement cost27 × $2,500 = $67,500Turnover costs about $67,500 a yearNow the evaluation writes itself: if a pay rise or a training scheme costs less than $67,500 and halves turnover, it pays for itself.
The leaky bucket
The most useful way to picture turnover is a bucket with a hole in it. A business can pour recruits in the top as fast as it likes, but until it fixes the hole it is paying twice for the same staff.
When a case study firm responds to high turnover by advertising more posts, this diagram is your criticism: the business is treating the symptom and paying for it every single year.
Why people leave
Internal causes (the firm can control these)
External causes (it cannot)
Poor management, so workers lose commitment.
A booming local economy with plenty of alternative jobs.
Weak recruitment and selection, so new hires leave soon after starting.
Better transport links, letting workers look further afield.
Low wages compared with what is available elsewhere.
A competitor opening nearby and hiring aggressively.
No training, no promotion route and repetitive work.
Changes in the industry that make certain skills suddenly valuable.
Notice the second internal cause. If staff leave within a few months of joining, the problem is usually the hiring, not the job. Somebody was sold a role that did not match reality.
Reading the number properly
A single turnover figure means very little on its own. Compare it across departments and the story appears.
The firm-wide average here is not the point. Something specific is going wrong in the warehouse, and that is where the investigation and the money should go.
Problems of high turnover
Opportunities it can bring
Recruitment and selection costs rise every year.
Workers with skills the firm lacks can be brought in, cutting the training bill.
Induction and training costs are repeated for each new hire.
New people bring fresh ideas and creativity.
Productivity dips while new staff learn the job.
Different approaches to problem-solving can improve performance.
Experience, customer relationships and know-how walk out with the leaver.
An expensive or underperforming employee is replaced at a lower cost.
What counts as high? It depends entirely on the industry. Fast food and seasonal retail live with turnover that would be a crisis in engineering or accountancy. Always compare with the sector, and with the firm’s own past figures, before calling a number good or bad.
💡 Exam tip
Always interpret after calculating. The percentage earns one or two marks; saying what it means earns the rest.
Use the 100% check on turnover and retention to catch mistakes instantly.
Split causes into internal and external. It structures the answer and shows what management can actually change.
Compare the cost of turnover with the cost of the fix. That comparison is what evaluation questions want.
Link back to motivation theory: leaving for a more interesting job is Herzberg; leaving over unfair pay is Adams.
Say that some turnover is healthy. A balanced answer beats one that treats every leaver as a disaster.
⚠️ Common mix-up
Forgetting the × 100. Both formulas give a percentage, not a decimal.
Using the wrong total. Divide by total staff employed, not by the number who left.
Retention is not “the ones who joined”. It is the proportion of the workforce who stayed.
Assuming turnover is always caused by pay. Management, boredom and lack of promotion cause plenty of it.
Judging a figure with no comparison. 20% is terrible in one industry and excellent in another.
Ignoring external causes. Sometimes a firm loses staff simply because a big employer opened next door.
Up next: Ways of Appraising Employees — how businesses find out who is doing well before those people become a turnover statistic.
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