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1.1 Background of the Study

The production of goods and services for human consumption are made possible by two main factors and two principal agents. The two main factors of production are land and capital while the agents are the entrepreneur and labour (Anyae1e, 2003,). The entrepreneur provides the land and capital resources while labour works on them to transform them into finished goods and services for consumption. In this arrangement the entrepreneur, sometimes referred to as the capitalist plays a pivotal role in that he provides the productive factors and engages labour to work on them (Anyaele, 2003).

The entrepreneur as the owner of the productive enterprise is the risk bearer, and his reward comes in form of profit (or loss). To maximize his return he carries out effective coordination and control of the enterprise a function he may also delegate to the employee. Thus, labour is vital both in productive and administrative functions of an enterprise. The engagement of labour by an entrepreneur creates a labour relation which can be referred to as dealing between management and workers about employment condition. An employer‘s relative power over employee is dependent upon numerous factors, the most influential being the nature of the employment relationship. The relationship an employees shares with his employer is affected by three significant factors namely personal, maintenance and motivation (Fox, 1974).
Personal is known as non-work factor while the last two arc known as job and organization related factors respectively, and represent the hygiene (maintenance) and motivators (growth) factors in Hertzberg‘s two factor theory (Mullins 2005). It is up to the employer to effectively manage and balance these factors to ensure a harmonious and productive working relationship. Employees of an enterprise‘ can organize into labour unions that represent their interest in the organization.

Also the employees through the union utilize their representative power to collectively bargain with the management of their organizations in order to advance concerns and demands of their membership (Martins 2003). However an offer of employment or even the existence of a workers‘ Union does not guarantee employment for whole life time. This means that an employment relationship is considered to be at will in which the employer and employee are both free to terminate the employment at any time and for any cause or for no cause at all provided the purpose of termination is not deemed unjust before the law (Boxall, Macky and Rasmussen, 2003).

The termination of employment by an employee or employer reduces the existing stock of labour force, while an addition by reason of fresh employment increases the stock of labour force. The process of reducing or adding to the existing stock of labour of an enterprise is known as turnover (Okunrotifa, 1982).

In human resource management context, turnover can be refers to as staff turnover, employee turnover or labour turnover which means the rate at which an employer gains or losses employee. Price (1977) defines turnover as ―the ratio of the number of organizational members who have left during the period considered, divided by the average number of people in that organization during the period, while Abassi et al (2000) say employee turnover is the rotation of workers around the labour market; between firms, job and occupation and the states of employment and unemployment. Labour turnover is also seen as the flow of manpower into and out of an organization, in which the inflow is referred to as accession and the outflow as separation (Fapohunda, 1980).

Behrend, (1953) succinctly sees labour turnover as one of the unorganized forms of industrial conflict in which employees usually retreat from unsatisfactory situations. A certain amount of labour turnover is inevitable. Illness: accidents, aging, death and a variety of personal reasons that bring about separation. Labour turnover is not always a negative phenomenon as studies have shown that it creates opportunities to introduce better hands, work practices and procedures, new ideas to an organization as well as providing career development opportunities for the existing workers (Tziner and Birati, 1996).

High rate of labour turnover however can severely reduce productivity as workers are perpetual learners, new to the organization all the time, demoralize incumbents and damage an organization‘s public image thereby adversely affecting her corporate existence (Olugunde, Asaolu and Elurnulade, 201 1)
Separation arising from job quits has specific adverse effects on both the worker and the organization. The worker who suddenly disengages from job experience disruption on income inflows, and may suffer the need to search, find and learn new job specifics under new career prospects (OECD Outlook, 1999).

The organization suffers the loss of job- specific skill (Fair, 1992), the loss of investment in terms of recruitment, induction, training, development and maintenance of the lost employee (Ongor 2007,). Where a replacement is to be made, the replacement costs include, search from external labour market for a possible substitute, selection between competing substitutes and formal and informal training of the substitute until he or she attains performance level equivalent to the individual who quits (John, 2000). In addition to these replacement costs, output is affected to some extent as it would either decline or be maintained at existing level at the cost of overtime payment or overstretching the existing labour force.


The disruptive effects of turnover on organizations are many that they try at all cost to minimize the turnover rate. Employee turnover is a much studied phenomenon although there have not been any precise reasons why people quit jobs. Some of the empirical researches are based on actual turnover while others on intention to quit. Apart from the practical difficulty in conducting turnover research among people who have left an organization, some researchers suggest that there is a strong link between intentions to quit and the actual turnover (Kirschenbaun and Mano-Ne grin, 1999; Mobley et al, 1979) note that the relationship between intentions and turnover is consistently and generally strong to predict satisfactory turnover relationship.

All over the world, small and medium enterprises (‗SMEs) have been looked upon as the engine of economic growth and for promoting equitable development (Adeyemi, 2011). Small and Medium firms have been praised over time because of the myth that they have the propensity to employ more labour since most of them have labour intensive production process than the larger enterprises. In Nigeria, Onah (2003) sees a vibrant SME sector as a necessary nursery of innovation and entrepreneurship to jump start the economy. Eneh (2005) has similarly observed that the vibrancy and growth of Eastern Nigeria economy which was adjudged the fastest growing and industrializing economy in the world in the early 1 960s was anchored on the emerging SMEs in some parts of the Region.
In Nigeria today, SMEs represent on the average between 80-90% of enterprises and account for 60 to 70% of domestic employment (Aremu and Adeyemi, 2011). For the Nigerian agrarian economy, SMEs can play significant role in the transition of agriculture- prone economy to industrial one by furnishing opportunities for processing activities which can generate sustainable sources of revenue and enhance the development process of the country (Fida, 2008).

However, findings have shown that SMEs in Nigeria have not done well hence it has been noted that a good number of them die within the first five years of existence while smaller percentage go into extinction between the sixth and tenth year with only about five to ten percent of them surviving, thriving and growing into maturity (Basil, 2005). Ezeh and Onodugo, (2002), Arernu and Adeyemi (2011) have attributed the early death and poor growth in the SME Sector in Nigeria to factors external to the sector.

Such factors include: poor access to funds, low equity capital from stakeholders, poor infrastructural facilities, multiplicity of regulating agencies, overbearing environment, little access to markets and information, corruption and societal attitudinal processes among others. Internal facts like poor management practices, poor condition of service and un-conducive work environment are de-motivators to employees are likely precursors to the unhealthy performance of the SMEs. Inadequate motivation (Ologunck, Asaolu and Elumilade, 2011), job related factors according to Nwadiani and Akpotu, (2002), have been suggested as strong predictors of labour turnover in Nigerian universities and non-work (personal) factors say Umar and Karofi (2007) as the major cause of labour turnover among female workers in the civil service.

A series of commissioned studies link job related factors and organization factors as possible predictors of labour turnover in a range of informal sectors notably the SMEs in some OECD Countries (Bluedom, 1982; Saks, 1996; and Zuber, 2001). However, there is a dearth of researches that have tried to link the seeming poor survival of SMEs to the rate of labour turnover in Nigeria. This is a lacuna which this work seeks to fill.

1.2 Statement of the Problem

The rate at which employer gains and losses employees, thus, it is used to describe it are how long employees tend to stay or the rate of traffic through the revolving door. Turnover is measured for individual companies and for their industry as a whole. If an employer is said to have a high turnover relative to its competitors, it means that employees of that company have a shorter average tenure than those of other companies in the same industry. High turnover may be harmful to a company’s productivity if skilled workers are often leaving and the worker population contains a high percentage of novice workers. Studies in developed economies have shown that job and organization factors are some major determinants of labour turnover in the informal sector notably the SMEs.

Though these have been historically laid down in management theories, policy formulation based on studies in developing economies which do not take into cognizance our individual country peculiarities might be misleading. The state or condition of yielding a financial profit or gain from the operations of the organizations determines how long that particular organisation thrives. Empirical evidence shows that while younger firms may have a higher propensity to generate jobs than older SMEs; this is to some extent offset by their lower survival chances. Since some mature firms also demonstrate a potential to generate jobs.

However, within the context of such a survival of SMEs, young growing firms may need particular kinds of support which could be offered within the context of policies designed to encourage and support growing businesses at different stages of development. SMEs sector plays a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector accounts for growth of the manufacturing output and as well as the total export of the country. Further, in recent years the MSE sector has consistently registered higher growth rate compared to the overall industrial sector. The major advantage of the sector is its employment potential at low capital cost.

Therefore when SMEs are not generating enough profit there is the tendency that they may close which is harmful for the development of the nation‘s economy. Also SMEs should be encourage with enough incentive to live longer as well as increase the size which in the long run assist in achieving the desired goal for which there were set-up.

1.3 Objectives of the Study

The general objective of the study is to investigate the impact of labour turnover on the survival of SMEs in Nigeria. The specific objectives are to:
i. Ascertain the impact of labour turnover on the profitability of SMEs in Enugu State.
ii. Determine the relationship between labour turnover and SMEs age in Enugu State and
iii. Establish the link between labour turnover and size of SMEs in Enugu state.

1.4 Research Questions


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