A high labour turnover rate indicates that workers leave frequently and do stay for long. Replacement of workers declines the overall efficiency which leads to productivity. The higher rate of labour turnover results in increased cost of production,! This is due to:
(i) Increased cost of recruitment and training,
(ii) Decrease in production due to inefficiency and inexperience of newly appointed workers,
(iii) Loss arising due to defective work and increased wastage in production,
(iv) Newly employed workers are likely to mishandle tools and equipment resulting in breakages of tools,
(v) The new workers are more accident-prone and increased number accidents cause loss of output and increase in medical expenses and cost of repairs.
(vi) Lack of cooperation and coordination between old and new workers resulting fall in output and increased cost of production.
The overall effect of labour turnover, therefore, is a higher cost of production and lower profitability.