Trinidad and Tobago: Policies on Inflation

Trinidad and Tobago: Policies on Inflation On September 8th 2010, the Honorable Winston Dookeran, the Minister of Finance for Trinidad and Tobago presented the Budget Statement for 2010/2011 fiscal year. The budget gave a comprehensive summary of the financial plan of the government, giving details of its expected levels of revenues as well as expenditure for the 2010/2011 fiscal year. Of the many areas of concern raised in the Budget by the Minister of Finance, inflation and government expenditure take precedence in this analysis. Due to the high levels of inflation in Trinidad and Tobago, the paper seeks to address the impact that various monetary and fiscal policies proposed by the government in the 2010/2011 Budget Statement have on inflation. The positive and negative effects of monetary and fiscal policies on inflation will be examined. Further, the paper will also examine the areas of government spending for the fiscal year 2010/2011 with the aim of identifying changes in expenditures patterns of the government and justifying reason for expenditure in certain sectors in this tough global economic climate. Time series data was utilized in order to determine trends and determine major changes in government expenditure. Suggestions were also made in an effort to identify certain plans that the government should consider and policies that it should monitor based on its current policies which it intends to undertake. The problem of inflation is one which plagues most developing countries as well as developed countries in recent times. Inflation is characterized by increases in the overall prices levels in a country over a period of time. In recent time headline inflation in Trinidad and Tobago has been influenced primarily by surging food prices while core inflation has remained relatively stable. Headline inflation measures the extent of changes in the prices level of all goods and services within an economy whereas core inflation can be defined as headline inflation minus other volatile components such as food prices. Based on the Central Bank of Trinidad Tobago Annual Economic Survey for 2009, changes in headline inflation from 2005 to 2009 was primarily due to changes in food prices, during which core inflation was relatively stable. This postulates that changes in the overall inflation rate which is referred to as headline inflation was due mainly to changes in food prices during which core inflation remained relatively constant. Further, the Summary of Economic Indicators June 2010 by the Central Bank of Trinidad Tobago has summarized that headline inflation rose to 13.7 percent from June 2009 to June 2010 primarily due to food inflation which increased to 31.1 percent during this same period, while core inflation remained constant during the year at 4.3 percent. The Trinidad and Tobago 2010/2001 Budget Statement estimates were made based on an average inflation rate of seven percent. This figure can be identified as the Government forecast for inflation for the fiscal year. The budget statement identified inflation as a concern with particular emphasis being placed on food price inflation. Inflation reduces customers purchasing power and thus it becomes more difficult for people to acquire basic goods and services. Therefore, it becomes imperative for Government of Trinidad and Tobago to put measure in place to reduce inflation and also to ensure that policies implemented to promote various sectors within the economy have little or no inflationary effects. In the budget statement, the government proposed plans to revitalize the agricultural sector in an effort to increase food production and expand the agricultural sector. The government further identified factors such as water resource management, drainage and irrigation as paramount to its public sector investment programme tailored towards making agriculture more profitable. In addition it proposed certain initiatives such as the enhancement of the Agricultural Development Bank which will provide a Loan Default Fund facility to assist farmers with natural calamities and interest payment, the reduction of interest rates to between three and five percent and the availability of twenty million dollars for greenhouse projects. All these initiatives as mention before are geared towards making agriculture more attractive, more profitable and more productive in an effort to reduce the food import bill of Trinidad and Tobago. Due to the lack of a productive agricultural sector in Trinidad and Tobago, fluctuating oil prices and the global financial crises, the cost of importing good such as food items has become more expensive. As a result, this higher cost is being passed on to consumers in the form of higher prices. This type of inflation is referred to as cost push inflation. Cost push inflation causes a contraction in aggregate supply and with aggregate demand remaining unchanged, the final result is an increased in overall prices. Therefore, if the initiatives undertaken by the government are successful and result in an increase in the production of food locally in Trinidad and Tobago, this could reduce the number of food items which are imported, thus decreasing the food import bill. Food prices will fall and subsequently headline inflation as changes in food prices is the major contributor to changes in headline inflation. Monetary policy can also be used to strengthen the local agriculture sector. The Budget also supports the Trinidad and Tobago Central Banks reduction of the Repo rate to 4.5 percent with further reductions to be expected. The repo rate is one of the monetary instruments used by the Central Bank of Trinidad and Tobago. The Repo rate was introduced by the Central Bank of Trinidad and Tobago in May 2002 and it is the rate at which the Central Bank is prepared to provide funds overnight to commercial banks that are unable to meet their liquidity demands. This reduction in the repo rate to 4.5 percent is expected to reduce the interest rate in an effort to attract investment. Lower interest rates are expected to attract investment from the private sector and also foreign companies in an effort to increase aggregate supply primarily through increased food production and thus reduce overall prices levels. A lower interest rate can lead to an increase in investment which raises aggregate exp enditure as purported by the Keynesian Cross. This increases real gross domestic product which further results in an expansion of the aggregate supply curve and a reduction in price levels. The Central Bank using accommodative monetary policy needs to ensure that the money supply does not grow too rapidly causing inflation. Accommodating monetary policy most times results in increases in the price level. Milton Friedman, a famous economist stated that inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. The Classical school of though is based on the quantity theory of money which is given by the equation MV=PY where M refers to the money supply, V refers to the velocity of money, P refers to the price level, Y refers to the real current gross domestic product and PY refers to nominal gross domestic product. The Classical school of thought believes that V and Y are constant and therefore, any changes in the money supply by the central bank will have a direct impact on the price levels. Therefore, it is imperative that the Central Bank ensure that the mon ey supply does not increase too rapidly and also that if the money supply does increase it is as a result of changes in output. The government in its effort to improve the production of oil and gas has reduced the petroleum profit tax from fifty percent to thirty five percent. In addition, due to the reduction in oil production over the past decade by approximately twenty five percent, the government decided to revise the Supplemental Petroleum Tax Regime with a new system which will use base rates and a sliding scale mechanism for both marine and land operations. The government also provided incentives which includes a twenty percent reduction in the Supplemental Petroleum Tax rates for mature or small oil fields, an Investment Tax Credit of twenty percent on qualifying capital expenditure in respect of the Supplemental Petroleum Tax for mature oil fields both land and marine. High energy cost in some industries will result in higher cost to consumer and a reduction in aggregate supply. Since oil and gas is used in almost all industries in some way or form, the reduction in these taxes could result in a fall in cost to companies both within and outside the energy sector. The lower cost of inputs would lead to an increase in aggregate supply. Additionally, lower operating cost can be passed on to consumers in the form of lower prices. However, it is important to note that if actual output does not increase, this would result in a contraction in aggregate supply. This would lead to and increase in the overall price levels and subsequently periods of falling real GDP. This phenomenon is referred to as stagflation. Stagflation is characterized by periods of falling output and increases in the price level. Situations like the CLICO Fiasco, the financial situation facing the Hindu Credit Union and other economic and social policies pursued by the government, has prompted an increase in budgeted expenditure from approximately $44 billion last fiscal year to $49 billion this new fiscal year. Government expenditure is a key component of aggregate expenditure which helps determine the level of gross domestic product. The gross domestic product of Trinidad and Tobago is made up primarily of revenues from the oil and energy sector. However, there has been declining production of oil over the past 10 years of approximately twenty five percent from 130,000 barrels a day to 103,000 barrels a day and based on the Annual Economic Survey 2009 from the Central Bank of Trinidad and Tobago, there has also been a continuous fall in real GDP growth from 2006 to 2009 fell where in 2009 negative three percent of real GDP growth was registered. The Keynesians argued that increases in aggregate expenditure caused by increases in consumption, investment, government spending or net exports can lead to an inflationary gap when actual GDP exceeds potential GDP. Thus and increase in government spending as purported by the Government of Trinidad and Tobago for this fiscal year can result in an inflationary gap. Furthermore, the budget also highlighted that the government owed contractors monies amounting to approximately $4 billion while there were outstanding VAT refunds still had to be paid in the amount of $2.8 billion. This lack of funds by the government has resulted in businesses experiencing cash flow problem. This makes it very difficult for businesses to meet their financial obligations. Also, based on the inventory system that the business uses whether it be First In First Out or Last In First Out it can be extremely difficult for the business to replenish stock in periods of inflation and can further affect the revenue that the business generates. As a result businesses may not have the necessary cash to replenish inventory which can result in limited supply which can manifest itself into even higher prices for customers in order for businesses to meet with the increase cost of inventory. Thus it becomes important that the government find ways to assist those businesses and pay o ff monies owed to these businesses in an effort to increase the cash flow within these businesses and prevent prices from rising further due to cash flow problem being experienced by businesses. Although the impact of government policies on inflation is very important, it is also important to analyze the level of government expenditure for this fiscal year 2010/2011 for Trinidad and Tobago. The Minister of Finance in his budget address stated that the calculations in the 2011 Budget were made based on a real GDP growth rate of 2 percent, average inflation of 7 percent, oil price of US$65 per barrel and gas price of US$2.75 per mmbtu. The total government expenditure for this fiscal year for Trinidad and Tobago was estimated at TT$49 billion. Government spending comprises transfer payments, current expenditure and capital expenditure and is financed by revenues raised through taxes or government borrowing or a combination of both. Government spending is a critical component of total expenditure and some of its functions include providing public and merit goods, promoting economic activity, influencing resource allocation, stabilizing the economy and the redistribution of inco me and wealth. When government uses government expenditure and taxes to influence the economy, this is referred to as fiscal policy. Based on the Central Bank of Trinidad and Tobago, Annual Economic Survey 2009, there has been an overall increase in government expenditure from the fiscal year 2005/2006 to 2010/2011. In 2005/2006 government expenditure was TT$ 31 197.9 million, in 2006/2007 it was TT$ 37 765.9 million, in 2007/2008 it was TT$ 44 715.1 million. In 2008/2009 where the country experienced its first deficit in seven years government expenditure was TT$ 45 584.2 million, in 2009/2010 it was TT$ 44 347.3 million and 2010/2011it is estimated to be TT$ 49 billion. It is also important to note that most components of government spending during this same time were also increasing such was current expenditure, expenditure on goods and services, wages and salaries and interest payments. During most of this period government spending as a percentage of GDP increased from 27.8 percent in 2006/2006 to 32.5 percent in 2008/2009. However in 2009/2010 government expenditure as a percentage of GDP fell to 31.3 percen t. Thus over the past five years government spending has increased by approximately TT$18 billion. In the 2010/2011 Budget statement, there was a breakdown on some of the areas of expenditure. Education and training received TT$ 8 325 million, Infrastructure received TT$ 5 918 million, Health received TT$ 4 341 million, National Security received TT$ 4 762 million, Agriculture received TT$ 1 836 million and Housing received TT$ 1 837 million. The government proposed expenditure pattern is an attempt to reduce inflation, foster economic growth and development and providing a better standard and quality of life for the people of Trinidad and Tobago. The government of Trinidad and Tobago has identified national security as one of its major areas on concerns. As of October 27th 2010, Trinidad and Tobago had recorded a total of four hundred and one murders. Crime has escalated in Trinidad and Tobago and the safety of resident and visitors are important. As a result the government has a projected expenditure figure of TT$ 4 762 million for national security. Recurrent expenditure for national security from 2004/2005 to 2008/2009 has increased from TT$ 1 874.5 million to TT$ 3 870.2 respectively. This shows the continued spending by the government towards promoting law and order and reducing crime. The government also has provided a special duty allowance of TT$ 1000 for more than 7000 police officers with taxes on this allowance waived. This increase in allowance can be used as a tool to motivate police officer in performing their duties. The government will also undertake initiatives such as the refurbishment and upgrading of polic e stations, introduction of bike patrols, the establishment of a National Security Operations Centre and a Special Criminal Court to expedite the court process. From 2004/2005 to 2008/2009, recurrent expenditure for Agriculture has increased continually from TT$ 362.9 million to TT$ 586.1 million respectively. However, recurrent expenditure in agriculture is not a significant part of recurrent expenditure as other areas such as health, education and energy. Therefore, Trinidad and Tobagos government expenditure in Agriculture is reflective of the government initiative to make agriculture more profitable and increase the local production of food. As mentioned before this venture is undertaken in an effort to reduce the food import bill of the country and further reduce the level of inflation caused by food prices. Also, this could result in increases in Agriculture contribution to gross domestic products thus making the country less reliable on energy and its associated products as its primary course of revenue. Further, expenditure in health has increased from 2004/2005 to 2010/2011. The Minister of Finance in the budget highlighted that health was another major issue facing Trinidad and Tobago. As a result expenditure in this sector will be geared towards the provision of adequate and timely health services to the citizens of Trinidad and Tobago. Government expenditure in the health sector will include expenditure to build new health facilities such as hospital, upgrade and expand current health facilities and services, improve access to health services, reducing communicable diseases and improving health care management. These initiatives in the health sector reflect the importance of health services and how important it is for person to have access to adequate and proper health services. This fiscal year, education and training accounted to approximately 17 percent of total government expenditure. The government has realized that knowledge is a critical component of an economy and as a result the government will continue initiatives such as the GATE programme and also restructure the On the Job Training programme. Some economists believe that knowledge does not experience diminishing returns. Therefore, this reflects positively on the economy of the country as the country may even decide to sells advising services which is an initiative that Trinidad and Tobago are pursuing. Moreover, the government has also decided to allocate approximately 12 percent of its total expenditure to infrastructure. Initiatives include providing person with a steady water supply and other basic amenities, implementing flood mitigation plans and the cleaning and de-silting of rivers. Also, sights and several attractions will be upgraded. This is in an effort to market Trinidad and Tobago as a major tourism destination which will further creates jobs and increase the contribution of tourism to gross domestic product. Thus, this will also make the country less dependent on energy and its products as the countrys main source of revenue. It is also important to note from the Central Bank of Trinidad and Tobago Statistics that from 2004 to 2009 government expenditure on areas such as goods and services, wages and salaries and transfer and subsidies increased continuously. For example, government expenditure on goods and services increased from TT$ 2, 440, 407 000 in 2004 to TT$ 5, 860, 175 000 in 2009 which marks an increase of approximately 58.35 percent over the five year period. This again reflects the high import bill especially on food items for Trinidad and Tobago over the past 5 years. The continuous increases in expenditure on wages and salaries paid by the government during this same period reflect the fact that the government is the main employer within the economy. This paper has sort to identify the effect of government policies and expenditure patterns on inflation and an analysis on government expenditure. The paper highlighted that certain initiatives undertaken by the government could help in reducing the overall price level in the country. These initiatives include the revitalization of the agricultural sector, increased government expenditure, reductions in the Petroleum profit tax and a reduction in the repo rate. The revitalization of the agricultural sector is geared towards reducing the food imports bill and subsequently food inflation. The reduction in the repo rate is in an effort to lower commercial banks interest rate to stimulate investment in certain areas such as manufacturing with the goal of reducing imports and subsequently food prices and inflation. The reduction in the petroleum profit tax to 35 percent is in an effort to stimulate oil production which has been declining over the past few years. However, as highlighted ea rlier in the paper, these initiatives need to be monitored careful as they can lead to further inflationary pressures. For example, a reduction in the repo rate can trigger lowers interest rates, banks experiencing excess liquidity and increased level of investment increases the money supply and leads to inflation as argued by classical economists. The paper also commented on government expenditure and identified an increase in government expenditure from the previous fiscal year to this fiscal year. Government expenditure in key areas such as education, health, infrastructure and national security increased over the past few years. National security and health were two major areas of concern for the government which received significant budgetary allocation by the government. The increase in crime and lawlessness has caused government to put measure in place to try to curb the crime problem in the country and also motivate the police to carry out their duties. Also, the government plan to improve the health sector was reflected by the governments budgetary allocation for the sector. The government also increased its funding in the agricultural sector in an effort to make agriculture more profitable and increase the production of food. The government also allocated revenues in other areas apart from energy in order to find alte rnative sustainable sources of revenue such as agriculture, tourism and manufacturing. It would be recommended that the government continue to pursue it agricultural initiatives and derive ways to make agriculture more attractive to individuals in its effort to make the sector more productive and profitable. In this way agriculture can contribute more to GDP both in the primary and secondary sectors as agricultural products are diversified and used into other sector such as manufacturing. This would also lead to other sector such as manufacturing contributing more to GDP and reduce the countrys reliance on primarily revenues from the energy sector. Also, the government would have to find ways to control the money supply which could take the form of selling government treasury bills and bonds. This would be in an effort to cope with the excess liquidity faced by commercial banks. In addition, due to the depletion of the natural resources available to the country which is reflected in the decreasing amount of oil produced for the past years, the government would be advis ed to develop other sector such as agriculture, manufacturing and tourism to increase the contribution of other sectors towards gross domestic product. It is know that an Open Petroleum Economy such as Trinidad and Tobago is one where rapid increases in GDP exist alongside high level of unemployment. According to the Open Petroleum Economy Model if anything negative happens to the oil sector the entire economy can suffer due to high dependence on that once sector. Seers argued that such a model represent a time bomb based on the balance of payment problems it can pose and how the wealth generated from it can disappear overnight. Therefore, it becomes increasingly important for Trinidad and Tobago to diversify into other sector of the economy. The country can pursue the manufacturing of some of the food which it imports and also pursue sustainable tourism development which can lead to increased employment. This would make the country less dependent on mainly oil as its main source of revenue as it currently the case. Further, the government should be extremely careful in its spending patterns and will be encouraged to spend in areas which will be productive to the country and benefit the citizens of the country. Spending should focus mainly on providing citizens with basic necessity items such as public and merit goods and proper social infrastructure. In this tough economic climate, the government should be very critical of the areas in which it spends money as excessive spending can have negative effects on the economy such as inflation. Does staff induction impact upon labour turnover? Does staff induction impact upon labour turnover? DOES STAFF INDUCTION IMPACT UPON LABOUR TURNOVER IN THE UK HOSPITALITY INDUSTRY? CHAPTER 1 INTRODUCTION 1.1 Overview This dissertation studies human resource management (HRM) and specifically employee induction and labour turnover. It aims to explore, evaluate and analyse the impact of employee induction on labour turnover in the hospitality industry. There is a plethora of literature that supports induction training and promotion of organisational culture, suggesting it can lead to higher levels of commitment, productivity, quality of service and profitability and reduced level of labour turnover (Boella, 2000: Fowler, 1999: Hofstede, 1994: Mullins, 1992: Nickson, 2007: Taylor, 2008: Torrington, 1994: Storey, 2007: Watson, 1995). 1.2 Rationale It is widely recognised by academics (Boella 2000:, Boella and Goss-Turner 2005:, Cook, 1993: Fowler, 1999: Goldsmith, Nickson, Sloan and Wood, 2003: Meighan, 2000: Mullins 1992: Sommerville, 2007: Storey, 2007) that high levels of staff turnover can lead to lower levels of customer service, reducing customer satisfaction decreasing profitability. The original reason for undertaking this study stems largely from the authors personal experience of working in the hospitality industry. Experiencing first hand the effect of a high labour turnover through team members either; resigning, being sacked, changing department or coming to the end of their contract. The effects of the high turnover added pressure to existing staff as they had to cover shifts, train new staff whilst also losing shared knowledge and expertise; leading to reduced staff morale, productivity, levels of service and customer satisfaction. Employee turnover has a research stream that can be traced back to the work of March and Simon (1958) and was primarily based upon the level of job satisfaction and organisational commitment. Labour turnover has always been high in hospitality, leisure and tourism compared to other sectors (Boella, 1992). This is reinforced with a survey by Roberts in 1995 (cited in Goldsmith et al 2003) found that of the 150 hospitality companies surveyed, where 95 percent identified high labour turnover as a problem. Ten years later and the industry still has a reputation for very high levels of labour turnover (Boella and Goss-Turner, 2005). The UK hospitality, tourism and leisure industry sector accounts for nearly 5% of the UKs total economic output, employing around two million people, representing one in 14 jobs, approximately 7% of the total UK workforce (People 1st, 2009). According to research by the Charted Institute of Personnel Development (CIPD), the hospitality industry has the highest staff turnover in the UK. A survey by People 1st (2009) reinforced this point by highlighting the 31 percent turnover figure in 2008/2009, costing an estimated  £414 million. The average cost of filling the vacancy created by turnover at  £219 without marketing, with marketing it would cost  £673 and  £764 for a managerial position. With the world recession, organisations are looking to save money where ever possible, reducing staff turnover is one area that could be seen as a target. 1.3 Aims and Objectives 1.3.1. Aim To evaluate the effect staff induction has on labour turnover in the UK hotel sector; looking specifically at operational staff. 1.3.2 Objectives The objectives for this dissertation are as follows: To evaluate literature on labour turnover, staff induction, organisational culture and commitment and HRM approaches in the hospitality industry. To analyse different approaches to induction and its effect on labour turnover. To evaluate models of best practice in induction and evaluate their use in the hospitality industry. To make recommendations on a best fit model of induction in the hospitality industry. Concluding the research and identifying limitations to the dissertation. 1.4 Research Methodology Research can be defined as â€Å"an orderly investigation of a defined problem using scientific methods to gather representative evidence and draw logical, unbiased conclusions (Poynter, 1993-p1). Sekran (2000) defined research as â€Å"the process of finding a solution to a problem after thorough study and analysis†. This dissertation is â€Å"a review of existing knowledge in a particular area together with the creation of a new slant of this knowledge† (Clark, Riley, Wilkie and Wood, 1998: p.7). The dissertation uses secondary research only. According to Clark et al (1998) and Sekran, (2000) secondary research does not introduce any new data and is based solely on data that already exists. The generic topic of HRM, linked to organisation culture, commitment, loyalty and staff induction has been widely researched and producing many academic journals, articles and theory which can be drawn upon. There are numerous advantages to using secondary research. As the data has already been published it can save resources such as time and money (Sekran, 2000), larger sets of data can be collected, analysed and evaluated with the effort focused on the analysis and evaluation (Saunders, Lewis and Thornhill, 2007). Furthermore, it can present higher quality data than primary research, it provides both qualitative and quantitative research (Sekran, 2000) and it can be checked by anyone at any time. Saunders et al (2007:p.256) stated that additionally it allows â€Å"more time to think about the theoretical aim and substantive issues† and can lead to â€Å"unforeseen or unexpected discoveries.† However there are some disadvantages to using secondary data. The data could have been collected with a purpose different to the research question it is being used for (Saunders et al, 2007). The data may be out of date, old or unreliable, so first the validity of the source must be v erified (Sekran 2000). Clark et al (1998) identified that up to date information may be difficult to obtain. Types of secondary data that are to be used in this research project uses various sources, including; government publications, industry statistics and reports, book and journals. These will be providing the main source of information, as the majority of this research is reliable and easily available. In order to locate information and sources, Emerald, Brookes Electronic Library, Google Scholar, and Brookes Library will be used. Online resources are quick, simple and easy to access. 1.5 Limitations to Research The research for this project does not include primary data, and is purely based on secondary research, as explained above this has its drawbacks. The project focuses on the UK as will hte literature however non UK sources will be used. 1.6 Chapter Structure This section will briefly outline the chapter structure and give an overview of what each chapter entails. Chapter 1 This chapter outlines the aims and objectives of the research paper, including a rationale justifying the reasons for this enquiry of research along with possible limitations and problems that may occur. It will also give a brief overview of the research methods used. Chapter 2 This chapter defines and identifies labour turnover in the UK hospitality industry. Exploring the patterns, causes and effects including the induction crisis. Chapter 3 This chapter aims to define and describe the current staff induction process, highlighting key approaches and models. Exploring the importance of socialization and building loyalty and the benefits. Chapter 4 This chapter draws on the research and applies it in indentifying a best fit staff induction model to reduce labour turnover in the hospitality industry. Chapter 5 This chapter aims to evaluate and review the effect staff induction has on labour turnover. This chapter also provides a conclusion with the recommendations and limitations to the research. CHAPTER 2 EVALUATING LABOUR TURNOVER IN THE HOSPITALITY INDUSTRY AND ITS IMPACT UPON PERFOMANCE 2.1 Introduction Labour turnover is an important issue to all employers worldwide; from governments and multinational companies to small privately owned business (Goldsmith, A., Nickson, D., Sloan, D. and Wood, R. 1997). Labour is an essential resource to any business, determining future success (Lucas, 2004). This chapter defines labour markets, explores the concept of labour turnover, defining it and highlighting key methods used to measure labour turnover, along with the effects. 2.2 Labour Markets The starting point for all strategic activity in HRM is to understand in which an organisation operates (Goldsmith et al, 1997). It is only possible to formulate accurate policies and practices once its keys features have been identified and their importance understood (Torrington, Hall and Taylor, 2005). The labour market is the source that provides the fuel for labour turnover. Riley (2000) refers to the labour market as a pool of available talent in which employers compete to recruit and subsequently retain staff. Labour markets are not organised, centrally planned, structure co-ordinated machines, rather a free flow or movement of employees in and out of jobs (Goldsmith et al 1997). Riley (1996) summed up the free flowing, erratic nature by stating that the market consists of thousands of individual decisions by employees and employers independently. Over time these small, singular choices provide a pattern or trend of the labour market, meaning the supply and demand in a labour market can be determined by the independent unconnected decisions (Torrington et al, 2005). One model created to help understand the labour market within the hospitality industry is the ‘dual labour market theory (Goldsmith et al, 1997 p16). They state the labour market is ‘made up of two distinct but related groups or markets, a primary labour market and a secondary labour market. Below in Table 1 is an outline of each theory. PRIMARY LABOUR MARKETS SECONDARY LABOUR MARKETS 1. Jobs are supplied by large, highly profitable firms. 1. Jobs are supplied by mainly small firms where profitability is not easily assured. 2. There is a high capital to labour ratio in these firms and high productivity. 2. There is a low capital to labour ratio and productivity tends to be low. 3. Production is usually large scale in nature and based on substantial proactive investment in technology. 3. Production is usually small scale and intensive in nature, and in commercial personal service industry at least, technological requirements are based on clearly defined needs. 4. There is a stable demand for products arising from national and international markets. 4. Demand for products and services is subject to irregular and/or seasonal fluctuations rooted in local and regional markets. 5. Wages and skill levels are relatively high. 5. Wages and skill levels are relatively low. 6. Opportunities exist for training and advancement. 6. Training opportunities are limited as are opportunities for advancement. 7. Employment is stable. 7. Employment is unstable. 8. Unionisation is often high. 8. Unionisation is low or nonexistent. Table cited in Goldsmith et al (1997) p17. Woods (1997) agreed with the dual labour market theory, summarising the primary market as consisting of highly profitable large firms, relatively highly skills jobs with the opportunity for training and development. It is widely perceived that the majority of the hospitality industry is similar to the secondary labour market; with profitability not guaranteed, relatively low paid, low level skilled jobs that are intensive (Goldsmith et al, 1997). 2.3 The UK Hospitality Labour Market The UK hospitality, tourism and leisure industry sector accounts for nearly 5% of the UKs total economic output, employing around two million people, representing one in 14 jobs, approximately 7% of the total UK workforce (People 1st, 2009). However as highlighted by Lucas and Wood (2000) the hospitality industry id highly reliant on young part time and casual labour. The State of the Nation Report 2009 by People 1st reinforces their point with 16 percent of the hospitality workforce aged between 16 and 19 years old, whilst only 5 percent are over 60 years old. Of the total workforce 59 percent are female of which 55 percent are part time employees, compared with 31 percent male. Boella (2000) identified that the common hospitality employee is typical of the secondary labour market; seeking short term employment, with relatively low or no skills. They have no desire to create a career and consequently leave after a short term of employment. This constant turnover is part of a vicious cycle, whereby employers are reluctant to invest in employees and as they leave soon after training (representing a loss of investment) and the employees leave due to little or no training (Goldsmith et al, 1997; Mullins, 2001). 2.4 Labour Turnover As already established the hospitality industry has a high level of turnover. Boella and Goss-Turner (2005, p178) define labour turnover as ‘the total number of leavers expressed as a percentage of the total number of employees in a department, unit or organisation. Lashley and Lincoln (2003) agreed by highlighting labour turnover simply as the movement of labour out of and into a working organisation. To understand how ones organisations faring it is possible to compare to industry averages. It is clear that hospitality had a higher than average figure in 2007. This high level of turnover is widely accepted as normal (Mullins, 2001). Industry Average Turnover 2007 Hotels and Catering 32.6% Retail and Wholesale 27.5% Media and Publishing 27.1% Construction 27.1% Call Centres 24.6% Communication 23.5% Manufacturing 20.95 Table: Turnover Rate. Cited in Taylor (2008 pp434). 2.4.2 Benefits of Labour Turnover It is highly debated in the literature as to whether turnover is a positive or negative within a business. Carrel et al (1995) in Taylor (2005) present the notion of functional versus dysfunctional turnover, suggesting that functional promotes innovative ideas and methods. Boella (2000) agreed and stated that with new employees ‘comes a breath of fresh air, a necessary change to prevent stagnation. Torrington et al (2005) also draw attention to research by Hom and Griffeth (1995) that has shown function turnover exists greater than dysfunctional. The net results is an improvement in productivity as the poorer employees quit, leaving a higher proportion of good employee enhancing organisational effectiveness. 2.5 Reasons for High Labour Turnover People leave employment for a variety of reasons, many of which are outside the power of an organisation to influence; such as leaving is retirement. Highlighted below are some of the key reasons of labour turnover. 2.6.1 Induction Crisis Mullins (1998) cited staff turnover to be at the highest level during the first few months of employment as the induction crisis. A report in 1984 by the HBTIB states that in the specific sector of guesthouses and hotels almost 45 percent of all new workers left their employment within the first three months, and 15 percent within the first month. This has reduce slightly over the last 20 years, with the People 1st (2009) survey highlighting that over 10 percent of turnover came within the first six months of employment, with bar staff at an average of 30 percent. This trend is disruptive and expensive, especially as the investment of training and time have been lost (Mullins, 1998). Torrington et al (2005) go further and identify more costs lost, such as marketing and interviewing, although these can be saved if the next employee is hired internally as opposed to externally. 2.6.2 Outside Factors Outside factors relate to situations where someone leaves for reasons that are largely unrelated to their work (Torrington et al, 2005). One of the most common reasons is relocation, whereby an employee moves cities or countries. Others might include the lifelong passion to travel, illness, and family issues (Meighan, 2000). To an extent this type of turnover is unavoidable, however is may be possible to provide childcare or flexible working hours (Torrington et al, 2005). 2.6.3 Push and Pull Factors With push factors the problem is dissatisfaction with work or the organisation, leading to unwanted turnover (Torrington et al, 2005: Lashley and Lincoln, 2003). Causes could include a range of issues from; insufficient development opportunities, boredom, ineffective supervision, poor levels of employee involvement or personality clashes (Goldsmith et al, 1997, Fowler, 1999: Mullins, 1995 and Torrington et al, 2005). If there are no opportunity to voice these concerns an employees tend to look elsewhere for work. Pull factors are the opposite, the attraction of a rival employer. Salary levels are often cited as the main cause, when a rival offers a better employment deal (Fowler, 1999). However it could also be; better opportunities, a chance to work with a particular person, or location issues such a commuting distance (Torrington et al, 2005). The two main aims for employers are to take are to ensure they know what the competition is offering, so they can be realistic and competitive (Meighan, 2000). Its also important that an employee understand what he has and appreciates it. 2.7 Understanding Labour Turnover Torrington et al (2005) stress that there is very little an organisation can do to manage turnover unless they understand the reasons for it. 2.7 Costs of Labour Turnover In monetary term labour turnover cost the industry  £414 million in 2008/2009 (People 1st, 2009). However this has a decreased since 2000 according to Boella (2000) who stated that labour turnover was  £430 million. The formula used to calculate labour turnover is the number of employees who left during a period divided by the average number of employed during a period, times by 100 and represented as a percentage. Boella (2000) identified that although the results of this formula givers a labour turnover percentage, it does not give any indication of productivity of the staff, so it is best to monitor both. Lashley and Lincoln (2003) state that there are a number of ways to determine the cost of labour turnover, yet the prevalent statistic used compares the number of leavers to the number to the normal component of staff. Whilst this is easier and quicker to calculated, it is less accurate and doesnt take into consideration the seasonality of an organisation, and giving no indication of the amount of time spent by an employee at the organisation Meighan (2000). Torrington et al (2005) suggests that labour turnover represents both direct and indirect costs. Direct costs include advertising, travel expense, marketing, additional staff overtime pay, interview time (Boella, 2000: Lashley and Lincoln, 2003 and Mullins, 1998). These cost are easily calculated and visible. Indirect costs associated with labour turnover include loss of leadership, low levels of staff expertise, reduced productivity, increased wastage and reduce customer satisfaction (Boella, 2000: Mullins, 1998: Taylor, 2005 and Torrington et al 2005). These intangible costs affect the remaining staff more, and are difficult to put a price on. 2.9 Conclusion The three common reasons stated by Torrington et al (2005) for leaving include: Dissatisfaction with the conditions of work, especially house. A perception that they were not being given sufficient career development opportunities A bad relationship with their immediate supervisor. The nature of the industry itself (seasonal, limited career structures). The nature of individual units (location, size, staff/work ratios). The nature of individual managers (lacking formal management training, acceptance of high labour turnover). High proportion of worker from the secondary labour market. Torrington et al. CHAPTER 3 AN ANALYSIS OF DIFFERENT APPORACHES TO INDUCTION 3.1 Introduction The following chapter provides a definition staff induction and socialisation and its importance, highlighting the key areas and effectiveness. The aim is to investigate the theories behind the induction process and its requirements. An employee is an ambassador to their organisation, representing them through their attitudes and behaviour, how they act is partly down to the organisational culture (Sommerville, 2007, p 47). How employees understand and learn these attributes begins with staff induction and socialisation. In HRM literature, organisational socialisation is widely recognised as a key process ensuring new employees can be efficient and effectively integrated within the organisation (Taylor, 2006). Both induction and socialisation are entwined together. Staff induction practices govern unconsciously or deliberately organisational socialisation (Torrington et al, 2005). With the continuous process whereby new recruits are brought into the firm is an important element of HRM practice. If executed well it can help to retain the new employee and reduce staff turnover (Lashley and Best, 2002). 3.2 Performance Management Systems There have been a significant number of studies over the last 15 years investigating the link between HRM and organisational performance. These have focused on the extent to which (if at all) high commitment or best practice HRM may lead to improvements in worker or organisational performance (Taylor). The idea is that particular bundles of HR practices have the potential to contribute improved employee attitude and behaviours, lower levels of absenteeism and labour turnover, higher levels of productivity, quality and customer service in all types of organisations (Sommerville). Performance management aims to directly link together individual goals, departmental purposes and organisational objectives (Torringon et al). Examples of performance management systems include; recruitment and selection, training and development. Armstrong and Baron (2007, p7-8) defined a performance management system: Communicates the organisation vision and objectives to all employees Set departmental and individual performance targets linked to organisational objectives. Uses formal review procedures to communicate performance requirements. Conducts formal reviews of progress Uses the review process to identify training, development and reward outcomes. Evaluates the whole process. 3.3 Induction Training Starting a new job can be a stressful process, wondering if you will fit in with your new co-workers, if everything is as good as advertised. Whilst some nerves are inevitable, helping to reduce them and making the new employee feel welcome are vital in retaining new comers (Lashley and Best, 2002). The term ‘induction can be interpreted in several ways, however in the generally used in the context of the workplace to describe the entire process of an adjusting to their new working environment and jobs (CIPD, 2010). Whenever new employees join an organisation there is always a period of learning and adaptation before they become fully effective (Meighan, 2000). Partly, this involves finding out about the practicalities of the job and facts about pay, other employee benefits and the organisations rule and regulations (Fowler, 1999). But there is also the need to understand the less tangible but very powerful influence of ‘the way we do things around here or culture (Meighan, 2000). Every organisation has its own culture and new employees are unlikely to be fully effective or feel comfortable in their work until they have absorbed this cultural influence and adjusted to it (Taylor, 2006). Induction has a number of distinct purposes (Armstrong, 2007), all of which are concerned with preparing the new employees to work as effectively as possible and as soon as is possible in their new jobs. The induction is the initial process of learning and adjustment (Fowler, 1999). Meighan (2000, p5) went further and defined induction as ‘a planned, systematic process to help new employees settle into their jobs, quickly, happily and effectively. Marchington and Wilkinson (2008) suggest that induction covers a variety of informal and formal programmes. From simple greeting and showing a new employee to their work station to personalised programme away from the immediate place of work. However some academics (Lashley and Rowson, 2000: Marchington and Wilkinson, 2008: Skeates, 1991: Storey, 2007: Tayeb, 2005) believe that the induction process begins with recruitment and selection. Here the employee and employer can discuss expectations and understand whats realistic, assisting in reducing a mismatch the job role, benefits and expectations. In accordance with these views induction (Skeates, 1991, p16) has been describe as being any arrangement made to familiarise the new employee with the organisation, safety rules, general conditions of employment and the department in which they are involved in. Boella (2000) reinforces this point by suggesting that the induction processes also involve welcoming the new recruit and introducing them to their new colleagues, and that the process starts from the initial contact with the employer. Irrespective of whether or not a structure process is in place, all employees go through an induction phase. In many organisations especially those that do not have a specific human resource department or manager, this may be little more than greeting before being shown to their workplace. New employees may be told to ask questions if needed and are left to get on with the job as it is assumed they already posses the skills to complete the task. Sometimes a rite of passage may consist of a joke, (go and get me a long weight), with little attempt to explain anything about the company from its mission statement to direction. Even information regarding health and safety or disciplinary procedures. However this can leave the employee feeling isolated and confused, unaware of the rules, causing them to leave. Each problem represents a cost to the employer; poor quality of work, unproductive new starter, time spent on disciplinary issues, re advertising the job. In these circumstances it i s unlikely the employer will develop commitment and loyalty (Taylor, 2006). Organisation socialisation is one of the fundamental processes that define how cultures emerge (Tuttle, 2002). It underpins the social structures (Cable and Parsons, 2001) that shape not only how social actors interact but also the boundaries of action and the rules of engagement. In the context of organisations, socialisation is a process that significantly shapes their way of core practices shape how things are done and why they are done in a particular way (Torrington et al, 2005). Staff induction and socialisation (Ardts et al, 2001) are central to the replication of an organisation because they enable new individuals to become functional members of a group. Ardts et al (2001, p159) defines organisation socialisation as â€Å"the learning process by which newcomers develop attitudes and behaviour that are necessary to function as a fully fledged member of the organisation†. This extends the process of inducting a new employee to the organisation by imprinting the norms, expectations and behavioural patterns. It focuses on the interaction between a stable social system and the new members entering it. Successful socialisation is the transformation from an outsider to participating effective insider (Copper-Thomas and Anderson, 2006, p492). 3.3.1 Psychological Contract One of the major influences on behaviour at is the psychological contract (Boella, 2000). The contract refers to the unwritten expectations (Taylor, 2006) of the employer and employees have of their relationship. What each other expects to be delivered, what they expect from the working experience, how they expect to be treated (Marchington and Wilkinson, 2005: Meighan, 2000: Taylor, 2006). These expectations exist only in the head of employees, but this does not mean they should be underestimated (Torrington et al, 2005). Like written contracts they can be breached, broken or changed without consent, resulting in dissatisfaction, de-motivation, and higher levels of staff turnover (Armstrong, 2007). The loyalty and commitment from the employee are lost because of a perceived injustice or a disloyal breach of their contract (Boella, 2000). Riley (2000) stated that the old contract characterises the yester year workforce; focusing on building long term relations, job security and career progression in exchange for loyalty. The ‘new contract has modified to typify the current flexible, transactional workforce (Taylor, 2007). The employer offers employment for a limited period, with some development opportunities in exchange for the employee completing a set of defined duties to an agreed standard until a better offer arises. As a result there is greater flexibility with less commitment (Tanke, 2001) and loyalty, as employees see their employment as short term and an opportunity to make money, develop skills and experience (Torrington et al, 2005), increasing the likelihood of staff turnover. In recent years much debate has been raised on the subject of the old versus the new contract (See TABLE *****) The Old Psychological Contract EMPLOYEE OFFERS EMPLOYER OFFERS Loyalty Security Commitment Future career