Why the ‘great resignation’ may not last long

A sign advertising vacancies is seen as people enter the store in New York, August 6, 2021.

Eduardo Munoz | Reuters

Reports of the so-called major resignation may have been exaggerated.

In recent months, a rapidly growing number of Americans have left their jobs ̵[ads1]1; more than 4.4 million in September alone, the last month for which data is available.

During that time, much of the story has focused on burnt-out employees stepping out of work – “Big Quit” as some have said, where workers demand higher wages, better working conditions and more mobility.

While employee dissatisfaction is an obvious factor behind quitting when they occur, there has recently been an increased focus on how employers can find incentives to prevent employees from quitting.

However, the problem has been complicated and probably overshadowed by the pandemic.

Economists at Barclays have a different theory. They say the trend is less about resignation than hesitation – concerns about Covid-related factors that, although growing as vaccines have spread and workers feel safer about leaving jobs again, are likely to subside in the coming days.

Many are still out of the workforce

In addition, the same data set from the Ministry of Labor, which indicates that employees are leaving in record numbers, also shows that employment is going fast – almost 6.5 million in September, more than 2 million more than those who left.

Although the pace of employment has cooled slightly from the summer, it is moving at a level that would easily have been a record before the pandemic. At the same time, the redundancy rate has remained constant for most of this year, reflected in weekly unemployment claims that have been in a range recently and are approaching where they were before the pandemic hit.

It all adds up to a job market where people leaving positions are more driven by temporary Covid concerns than a general strike, as some have suggested.

“We believe that this dynamic of resignation is for the most part a symptom of other underlying forces affecting labor market participation, rather than a cause,” wrote Barclays Deputy Chief Economist Jonathan Millar and others in a lengthy analysis.

“The high closing rate is actually a red herring to understand the slow return of workers to the US labor market after the COVID-19 pandemic, in our view,” Millar wrote. “Instead, the real reason is that workers are reluctant to return to the workforce, due to influences related to the pandemic such as the risk of infection, infection-related illness and lack of affordable childcare.”

It thus paints a completely different picture of a major resignation where dissatisfied workers simply leave jobs in droves.

Nevertheless, the issue of a declining workforce is important to understand, and it irritates politicians in the Federal Reserve and elsewhere.

Occupational participation, a measure of those who work or seek work against the total working-age population, is 61.6%, 1.7 percentage points below the pre-pandemic level. This represents a decrease of just under three million since February 2020.

Fed officials have said they will not start raising interest rates until the labor market approaches pre-pandemic levels, and seeing a normalization of the participation rate will be part of that equation. The size of the workforce is about 1.4 million larger than at the beginning of 2021, but still not where politicians want it to be.

Referring to the Labor Department and other data, Barclays said the decline in labor force participation is almost exclusively fueled by married people living with a spouse who left the labor force in late summer 2020 and did not return.

“This general profile in itself gives us reason to believe that many of the missing workers will gradually return to work,” the company said. “This is supported by research evidence from other sources that suggests that covid-related considerations – such as infection risk, disease and pandemic income support – are still important contributors to ongoing reluctance to participate.”

Where the ends are

The figures also show a labor market that is becoming increasingly dynamic.

About half of all quits this year have come from leisure and hospitality, an industry under intense pressure from the virus and associated restrictions and fears that have restricted dining and drinking out.

However, about one-fifth of these endings have also come from professional and business services, according to DataTrek Research. With many of these moves coming from higher levels including CEOs, the trend is “likely a positive sign for the job market,” DataTrek co-founder Jessica Rabe wrote in a recent report.

“The cancellation rate is traditionally a measure of financial confidence, as workers usually voluntarily leave their current roles after accepting a better offer,” Rabe added. “The exit in this industry together with the general high level of quitting puts upward pressure on wages, which is useful from a consumption perspective in the midst of strong inflationary winds.”

In fact, wages have been booming recently, rising 4.9% year-on-year in October. It is seen as a growing proof of an empowered workforce that can achieve higher wages.

However, it can be a dark side, as the difficulty of finding workers can force business owners to turn more to automation and exclude people from these jobs.

This is another reason why the dynamics that underlie the great resignation, as it is, can change rapidly.

“With this backdrop, we expect continued growth in automation roles both to take the place of workers companies cannot find and to compensate for increasing wage pressures,” Rabe wrote. “This will be an important trend to see as it will shape the labor markets in the long run given that automation, once installed, will simply never be reversed.”

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