Walter Orthmann has worked for the same textile manufacturer in Brazil for more than 84 years, recently setting a Guinness World Record for longest career at a single company. It’s a remarkable stretch, considering American workers now spend a median of just 4.1 years with their employers, according to federal data collected shortly before the COVID-19 pandemic disrupted a spectrum of industries and spurred the so-called “Great Resignation.”
The record-high quit rate — more than 47 million workers last year — has led to the tightest U.S. labor market in decades, with employees using their leverage to call the shots and find better jobs. They’re renegotiating everything from their salaries to shifts to remote or hybrid work. The modern workplace is increasingly transactional — a marked transformation from the post-war era, when employees stayed put until they retired with a party and a pension. The dramatic change raises the question: Whatever happened to workplace loyalty? “The balance of power continues to shift back and forth. Sometimes, the employer doesn’t need to make such an effort. They need to make that effort now,” Wharton management professor Matthew Bidwell says.
Janice Bellace, a Wharton professor of legal studies and business ethics, thinks loyalty is an outmoded concept. Instead of worrying about it, she says, companies should be making sure employees “feel engaged and well-treated.”
Loyalty implies something about the relationship being reciprocal, Bellace advises. “If you’re at a company and feel productive and properly treated, you may still go to another company if they pay you 20 percent more. But if people feel very engaged and well-treated, they not only will feel productive; they will want to stay.”
The High Cost of Turnover
The lack of longevity in the workplace may feel like a recent trend, but it goes back at least two generations, to the 1970s. Manufacturing was on the decline, the oil crisis sparked a recession, and high inflation followed. Companies were looking to cut costs, so perks like holiday parties and access to the company golf course — little extras that gave employees a sense of belonging — began to disappear. By the 1980s, globalization and foreign competition threatened American economic dominance. Factories shut down without notice, layoffs were common, and attrition was an easy way for firms to stay in the black. “All of this made people much more cynical about the company, and they really did see it as transactional: I work for you to get paid. That’s it. There is no relationship,” Bellace says.
In the 1990s, a fresh wave of downsizing eroded any remaining feelings of loyalty, since it was often done to increase profits rather than to save the enterprise, Bidwell notes: “This was not, ‘We’re losing money, so we have to let people go.’ This was, ‘We’re doing fine, but we’re able to make more money by letting people go.’ That was a change in the contract. Before that, there was a sense that the contract was much more paternalistic.”
Bellace traces workplace loyalty along a decades-long timeline, with the employee-employer relationship slowly withering into the present. Along the way, employers came up with new terms to revive the dying relationship, like referring to employees as team members or family. “It’s very odd. What family would terminate you?” she asks.
Over time, job-hopping became normalized and even expected. Yet it’s still harmful for employers, according to the professors. Turnover has enormous costs. Recruiting and training employees is expensive and time-consuming and usually leads to lost productivity as new hires make mistakes and get up to speed. “What most companies tend to overlook is that there is a cost to employee turnover that they don’t put on their spreadsheet — experience and institutional knowledge,” Bellace says. “If a new person doesn’t know how you do something in the company, they have to use time to find out. How do you calculate that?”
Restaurants, retailers, and other companies that rely on low-skilled workers have tried to mitigate turnover by “de-skilling” their jobs as much as possible through automation, Bidwell says. But that’s not enough to offset the money saved by retaining experienced employees. Perhaps that’s why so many stores and restaurants are trying to lure new workers with offers of $10 to $15 an hour — significantly higher than the current federal minimum wage of $7.25. “They are starting to understand it makes sense to pay a bit more and have people stay longer, compared to a world where you pay people as little as you can get away with but you reap higher costs somewhere else in your system,” Bidwell says.
Numerous studies have been conducted on the cost of turnover, with figures varying widely based on position and industry. That variation contributes to the complacency many companies show when it comes to retention. “It’s super-easy to see the cost of raising wages by a dollar. It’s very hard to calculate the cost of attrition,” Bidwell says. “It’s hard to measure, and we tend to focus on the easily measurable things.”
Besides money, there’s also the matter of organizational citizenship. “If everybody is purely out for themselves and just doing the bare minimum, nothing will get done,” Bidwell notes. “Organizations need people who want to look out for the organization’s interests and want to do the right thing.”
The Pandemic’s Effect on Loyalty
The COVID-19 pandemic has had a curious effect on the emotional component of workforce loyalty, particularly for office employees. The massive shift to remote work has prompted people to rethink their priorities. For many of us, that’s meant changing careers.
Bellace isn’t surprised by what some have dubbed the “Great Rethink.” Working from home may be convenient, she says, but it strips away the social contact that fosters “good and fuzzy feelings” about going to the office: “You chitchat over morning coffee, someone comes in with a birthday cake, there’s a baby shower because someone’s having a baby. All those things that would build up a relationship in a workgroup have been missing the past two years. So I think it’s more likely right now that if somebody sees they can make significantly more money at another company, they’ll just up and quit.” With workers leaving their positions in droves, employers are on the losing side of a tight labor market. Bellace cites figures showing the labor force participation rate is down one percent to two percent compared with before the pandemic: “That may not seem like a lot, but it is.”
Still, the labor market is cyclical, and neither Bellace nor Bidwell expects this situation to last. They also don’t foresee a resurgence in workplace loyalty. Orthmann, the Brazilian textile worker, who celebrated his 100th birthday this year with his co-workers, could be the last record-holder of his kind. “It’s always a moving target. It’s a calculative loyalty,” Bidwell says. “As long as I believe I will do okay, I’ll stay with you. But when the trust is gone, people are going to leave. That’s always been the case. I don’t see a big change to that.”
Published as “Relics of the Past” in the Fall/Winter 2022 issue of Wharton Magazine.