Wal-Mart has already made the decision to increase entry level wages. Recently it announced a new training program that will be rolled out to over 4500 U.S. locations, focusing on entry-level workers. Both of these steps make sense economically if the cost savings from reduced turnover and higher productivity offset the cost of higher wages and more training.
Employee turnover costs money—by industry estimates as much as $5,000 per front-line worker, or 20% to 30% of an entry-level salary. Standard turnover in retail is 50% in the first six months. If Wal-Mart can reduce this churn, persuading people to stay at least 12 to 18 months, it will save “tens of millions of dollars a year.”Increased customer satisfaction is another possible payoff. A key issue will be how responsive turnover really is to higher wages and more training. Unless Wal-Mart plans to build a lot more stores, I have to question its ability to create long term career options for its entry-level help.
Employers are keenly aware of training costs. If they think workers can be persuaded to stick around, they will consider investing in skill development. Otherwise they will either avoid training altogether or shift the cost to the worker via lower compensation. Over the last seven years, the trend has been toward reduced investment in employee development. If the tide is turning now, that is a pretty good signal that we are getting near full employment and employers are fearful of labor shortages.