OBJECTIVES: Lost productivity arises in the economy when a person is unable to work, and is an important component of a societal perspective in economic evaluations. The friction cost approach (FCA) is one way to value lost productivity, and considers the time taken to replace an employee, known as the friction period (FP). However, no estimates of the FP and associated costs are available for Australia, limiting local relevance of FCA estimates. The objective was to identify, for the first time, the time and costs of replacing an employee in Australia, accounting for worker seniority and team environment.

METHODS: We conducted a survey of staff responsible for recruitment in businesses across Australia. Respondents considered the last employee hired at management and non-management levels, and reported workforce composition, recruitment time and costs, and team dynamics. The FP was decomposed into three periods: the recruitment decision, the recruitment period, and the training period. Descriptive statistics of the FP, work elasticity, and the multiplier and compensation effects of teamwork were calculated.

RESULTS: The sample (n = 409) was representative of Australian businesses - primarily small organisations (2 to 4 employees, 55%) in urban locations (74%). In the previous 12 months, the time (12.3 weeks, CI 9.8-14.7) and costs ($6230, CI $3421-$9038) to replace a manager were higher than those to replace non-managers (10.0 weeks, CI 8.4-11.7; $2666, CI $1680-$3651). Multiplier and compensation effects were consistent with the literature, for example as time off work increased, there was an increasing impact on other employees’ productivity, particularly for absent managers.

CONCLUSIONS: Although there is variation, the Australian FP is generally lower than other studies, where the FP is assumed (rather than measured) to be three months. This has implications for economic evaluations where productivity losses of new health interventions may be overestimated.