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How we can modernize policies to address the drivers of turnover in today’s economy

May 19, 2023 — Modern Economy Project

The record pace of employee turnover in the past few years makes clear that flexibility and autonomy are increasingly non-negotiable for workers.

In a recent blog post, we explored what’s driving the norm of “job hopping” in the modern economy.

But the rapidly evolving changes in our economy are outpacing policies designed for the past norms of people working full-time exclusively for one employer.

There are a number of opportunities to update our policies so that they support workplace flexibility and healthy turnover in the economy.

First of all, we should rethink the definition of “success” for a business.

Turnover rates tend to vary widely by industry, due to factors such as the type of labor needed, demographics and seasonal hiring demands.

Data shows that turnover ranged from as low as 18 percent for the government sector to 86 percent in the accommodation and food services industry in 2021. So turnover rates should be considered within the context of an industry and its needs.

Furthermore, turnover rates are becoming increasingly irrelevant with the rise of independent contractors and the growing number of employers that offer highly flexible work policies.

In recent years, record numbers of people have opted out of traditional full-time employment altogether to start their own businesses or freelance instead.

In today’s economy, our policies should support people who want to diversify their income sources.

Many independent contractors currently reap the benefits of flexibility, but sometimes at the price of not being compensated with the traditional benefits of health insurance, retirement contributions or paid leave for full-time employees.

Employers that hire independent contractors should be allowed to offer benefits without needing to enter into different business relationships – such as classifying business partners as employees in a way that doesn’t make sense, as a flawed proposed Labor Department rule proposes. That's why the Modern Economy Project has called for finding commonsense alternatives to preserve the independence and flexibility that these workers prioritize while ensuring they still have access to basic benefits.

Another way to ensure that all Americans, regardless of their individual work structure, can still have access to basic things like health insurance is creating “portable benefits” policies. Under these proposals, workers could keep the same benefits from job to job.

These policies are increasingly gaining traction among lawmakers of both parties at the state and federal levels.

After all, independent contractors wouldn’t be the only people to benefit from “portable” policies. People changing from one full-time job to another will often encounter waiting periods for health coverage or fully vested retirement savings contributions.

For instance, someone starting a new full-time job on the second day of the month might have to wait until the first day of the next month for a new health insurance policy to begin. In the meantime, they’re forced to either go almost a month without health insurance or pay for COBRA coverage that can cost several hundred dollars.

These gaps in our current system demonstrate why current employment policies are increasingly outdated. That’s why we should embrace policies that enable flexibility for everyone in our modern economy.

Americans want independence and flexibility without being tethered to the same employer for their entire careers. Employers should recognize that they benefit from experienced people who have demonstrated they can tackle a variety of challenges.

With the right policies in place, employers and individuals alike can gain from this new reality.

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