Why the “big departure” may not last very long

A sign advertising vacancies appears when people enter the store in New York on August 6, 2021.

Eduardo Munoz | Reuters

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

In recent months, a rapidly growing number of Americans have left their jobs – just over 4.4 million in September, the last month for which data is available.

During that time, much of the story has focused on burnt out employees quitting their jobs – “Big Quit” as some have put it, where workers demand higher wages, better working conditions and more mobility.

Although dissatisfaction among workers is an obvious factor behind them quitting whenever they occur, there has recently been an increased focus on how employers can find incentives to prevent workers from leaving.

However, the issue has been complicated and probably clouded by the pandemic.

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

Many are still outside the workforce

In addition, the same work department data set which indicates that workers who quit in record numbers also show that employment is developing at a rapid pace – almost 6.5 million in September, more than 2 million more than those who quit.

Although the employment rate has cooled slightly since the summer, it is moving at a level that could easily have been a record before the pandemic. At the same time, the number of redundancies has been constant for most of this year, which is reflected in unemployment reports every week who have been in an area recently and are approaching where they were before the pandemic struck.

It all leads to a labor market where people leaving their jobs are driven more by temporary Covid problems than a general strike, as some have suggested.

“We believe that this retirement dynamic is mostly a symptom of other underlying forces affecting labor market participation, rather than a cause,” wrote Barclay’s Deputy Chief Economist Jonathan Millar and others in a lengthy analysis.

“In fact, the high frequency of joining a common thread to understand workers’ slow return to the US labor market after the covid-19 pandemic is, in our view,” Millar wrote. “Instead, the real reason is that workers are reluctant to return to the workforce, due to pandemic-linked influences such as infection risks, infection-related illness and lack of affordable childcare.”

It thus paints a completely different picture of a large resignation application where dissatisfied workers simply leave jobs en masse.

Still, the issue of a declining workforce is important to understand, and it annoys decision-makers at the Federal Reserve and elsewhere.

The labor force participation, a measure of those working or seeking work against the total working-age population, is 61.6%, 1.7 percentage points below the pre-pandemic level. This is a decrease of almost three million since February 2020.

Fed officials have said they will not start raising interest rates until the labor market approaches its pre-pandemic levels, and seeing a normalization of the participation rate would 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 would like.

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 risks, diseases and pandemic income support – remain important contributors to ongoing reluctance to participate.”

Where the shutters are

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

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

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

“The percentage of quits is traditionally a measure of financial confidence, as workers usually voluntarily leave their current roles after accepting a better offer,” Rabe added. “The rise in this industry coupled with the overall high level of closing puts upward pressure on wages, which is helpful from a consumer spending standpoint in strong inflation headwinds.”

In fact, wages have been rising sharply recently, increased by 4.9% compared to the previous year in October. It is seen as a growing proof of an empowered workforce that can receive higher pay.

However, there may be a dark side, as the difficulty of finding labor can force business owners to turn more to automation and lock people from these jobs.

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

“Against this background, we expect continued growth in automation roles both to replace workers that companies cannot find and to compensate for rising wage pressures,” Rabe wrote. “This will be an important trend to watch as it will shape the labor markets in the long run given that automation, once installed, will simply never be reversed.”