‘The Great Resignation’ is all over the news. Millions of Americans are quitting their jobs – 4.5 million in November. A record number, and a phenomenon that needs to be explained. Most commentators mention pay, but we also read about burnout, concerns about management and opportunities for advancement. In other words, job quality. We also read that businesses are crying out for workers, meanwhile their current workers are leaving in droves.
Well, as Paul Harvey would say – and mentioning him undoubtedly dates us – now for ‘The rest of the story.’ The Great Resignation could be called ‘The Great Hiring Boom.’ Or maybe ‘The Great Worker Churn.’ It is certainly true that workers are quitting their jobs in large numbers. But they are not leaving the labor force – that happened earlier in the pandemic and was largely due to retirements. Neither are they leaving to join the unemployment lines. In fact, the national unemployment rate continues to fall. Instead, workers are quitting to move to a new job. And that new job no doubt has more attributes that workers care about. These dimensions include pay and other benefits, as well as working conditions such as opportunities for advancement and the presence of good management. Basically, companies must compete for the available workers, and that competition means making the proffered job more desirable to potential employees.
Consider the accompanying graph of data from the Bureau of Labor Statistics. What stands out is the large amount of separations in Spring 2020 during the first months of pandemic lockdowns. Separations reached nearly 11% of employment, mostly due to layoffs which were 8.6% of employment. This was accompanied by a reduction in hiring in March and April, followed by a peak of hires at 6.2% in May.
What about ‘The Great Resignation’? Resignations – quits -- have risen as a percent of employment, from a typical 2.3% in July 2020 to a high 3.0% in November 2021. But hires have risen too, and hires have exceeded quits in every month since April 2020, and hires have exceeded total separations (which includes layoffs and ‘other’ separations) in every month since April 2020, other than a tiny deficit in December 2020. In November, hires were 4.5% of employment. Total separations were 4.2%, of which 3% were quits and the rest layoffs and other sources of separation. Hires were substantially above quits, and by historical standards well above total separations. That is, to the extent that there is a boom in resignations, there is a hiring boom.
Yes, there is also a boom in job openings, which in November stood at 6.6% of employment, well above the hiring rate. This is a rather large number of job openings, indicating businesses’ desire to increase their workforce as the economy has recovered from Covid and the imposed lockdowns. It also indicates that businesses must compete for workers with pay and other job amenities - a good position for workers.
Why has the job market changed in this way? In November, hires were 6,697,000, well above quits at 4,157,000, but job openings were 10,562,000. One reason for this frantic pace of hiring, and this churn in the labor market, is the decline in number of workers compared to pre-pandemic levels. Our labor force has shrunk by 2,289,000 workers compared to pre-pandemic levels. These are workers not currently available for hiring, and many took retirement during the pandemic. In addition, while the unemployment rate has been steadily declining for months, the number of unemployed workers is 493,000 more than pre-pandemic. Finally, GDP is higher than pre-pandemic levels, indicating that the economy is producing more output with fewer workers, although the growing job openings indicate that we may have reached the limit of what many businesses can produce with current workforce numbers. Again, this has fueled the number of job openings and led to increased competition for workers. In the end, workers will have higher wages and better working conditions as a result.