The Great Resignation and the Labor Shortage

What makes 2022 a great year for a job makeover?

BY JOHN MILLER | May/June 2022

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

This article is from the
May/June 2022 issue.

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Take this job and shove it
I ain’t working here no more
My woman done left and took all the reason
I was working for
You better not try to stand in my way
As I’m a-walkin’ out the door
Take this job and shove it
I ain’t working here no more

I’ve been workin’ in this factory
For now on fifteen years
All this time I watched my woman
Drownin’ in a pool of tears
And I’ve seen a lot of good folk die
That had a lot of bills to pay
I’d give the shirt right offa’ my back
If I had the guts to say
Take this job and shove it
—“Take This Job and Shove It,” lyrics by David Allan Coe, song by Johnny Paycheck, 1977.

The folks over at the Wall Street Journal have an important announcement: 2022 is the perfect year to finally land your dream job. Career coaches and compensation consultants are urging enterprising job hunters to start by making a list of the aspects of your job that you hate.

But you don’t need an overpriced career coach or a fancy consultant to get that advice. Just break into your vinyl vault and give Johnny Paycheck’s protest ballad, “Take This Job and Shove it,” a spin. His lyrics are nothing other than a list of the aspects of his job that he hates. But unlike in 1977, when Paycheck’s hit topped the country and western charts, 2022 is in fact an advantageous moment for getting rid of your nightmare job and finding a better one. But we’ll need to take a closer look at the Great Resignation and the labor shortage that has fueled it to tease out just what conditions have contributed to workers acquiring the bargaining power needed to trade in their current jobs for better ones.

Sizing up the Great Resignation

To begin with, “resignations” is not a term economists use. What economists track is quits, employees who leave their jobs voluntarily. Quits increased rapidly with the economic recovery from the pandemic recession, reaching 4.51 million in November 2021, the highest level on record up to that point. And 4.54 million quits in March 2022 topped that record. Economists do use the term “great,” as in the Great Recession of 2008–2009, and the Great Depression of the 1930s. Calling today’s record level of quits the “Great Resignation,” however, is most likely an exaggeration. Historical evidence suggests that quit rates were higher in 1945 at the close of World War II and likely higher in the late 1990s during the dot-com bubble as well.

That quits are rising is hardly surprising. Workers hold on to their jobs for dear life in an economic downturn. When the pandemic struck, the number of workers quitting their jobs fell by more than two-fifths (43%) from January 2020 to April 2022. Quits rise when the economy expands, creating more jobs and making it easier for workers to find another job. Nor is it surprising that quits would reach record highs in the current recovery, which has already replaced almost all of the jobs that were lost to the pandemic shutdown.

More low-wage workers than better-paid workers have quit their jobs. In December 2021, the quit rate (the percentage of workers who quit their job) for workers in the well-paid finance sector was less than a third of the quit rate for retail workers, and less than a quarter of the rate for those working in hotel and restaurants, where average wages were less than half of those in finance. Also, workers’ compensation (wages and benefits) in low-paid sectors, with their elevated quit rates, is rising rapidly. Workers in the leisure and hospitality sector, which pays rock-bottom wages, quit twice as often as the average rate for all workers. Their compensation rose 6.9% during 2021, well above the 4.1% average for all private-sector workers. Better pay for low-wage workers is good news, especially for the U.S. economy. Low-wage workers (workers who make less than two-thirds of median earnings) are nearly a quarter of the U.S. workforce (23.8%), a much larger share than the 13.9% average for advanced economies.

We also know that job-switchers have been getting bigger raises than workers who stayed put. As of March of this year, the annual wage increase of the typical job-switcher was 7.1%, while the wages of those who stayed in their job increased 5.3%, according to the Federal Reserve Bank of Atlanta. And a survey conducted by ZipRecruiter for the Wall Street Journal found that a little under one half of job-switchers (45%) got a raise of 11% or more, and a bit more than one-fifth of them (22%) got a signing bonus.

Finally, there is good evidence that, by and large, workers are quitting their jobs, not work. For instance, economist Elise Gould at the Economic Policy Institute found that in January 2022, the rate of hires was greater than the quit rate in all 14 major sectors of the economy. So, it seems likely that workers who quit their jobs are taking jobs in the same sector.

For that reason, Minneapolis Federal Reserve President Neel Kashkari doesn’t “really buy the Great Resignation” story. Instead, he calls what’s going on in the labor market “a churn away from the toughest jobs,” such as long-haul trucking, with its debilitating working conditions. And in his New York Times blog, economist Paul Krugman asked if the Great Resignation is actually “a great rethink.” As he sees it, the large number of layoffs during the pandemic shutdown gave workers time to reflect on their work life. And the rising number of job openings provided them with an opportunity to switch jobs if that’s what their gut told them to do.

What’s Behind ;the Labor Shortage?

But if workers who quit their jobs for the most part remain in the labor force, then what explains the ability of workers to find better jobs and to command higher salaries? A hesitancy to return to unfulfilling jobs, or a preference for attractive jobs over the toughest jobs, might fuel their desire for better work. But are the desires of today’s workers for a better job really any greater than those of yesterday’s workers? Johnny Paycheck would surely dispute that claim.

What is different is the current labor shortage. Today the number of job openings is far greater than the number of unemployed people looking for work. Job openings have exceeded the number of unemployed people in only two periods since the U.S. Bureau of Labor Statistics began tracking job openings in 2000. The first was from January 2018 to February 2020, the last two years of the decade-long expansion that was ended by the pandemic shutdown. The other began in June 2021 during the current economic recovery and continues today. During the first period, the number of job openings for each unemployed worker peaked at 1.24. But in March 2022, that ratio reached 1.94, the highest level on record.

What accounts for the tightest labor market in the last two decades? Part of the answer is that the current recovery is on pace to add back jobs lost during the downturn in about half the time it took the long, sluggish recovery from the Great Recession to replace a smaller number of lost jobs. The average number of jobs created each month from April 2020 to April 2022 was four times the monthly average from January 2010 to January 2020.

While the number of job openings has gone up at a record pace, what explains the fact that the number of unemployed people looking for work has not matched the increasing number of job openings? Several factors are at work:

Increased obstacles for workers, especially mothers, to return to the labor force. While steadily increasing, the U.S. labor force participation rate (the percentage of the adult population employed or looking for work) in April 2022 was still below its peak level in February 2020, before the pandemic. In the eurozone and Canadian economies, both hard-hit during the pandemic downturn, labor force participation returned to its pre-pandemic levels by the end of 2021. The failure of U.S. labor force participation to bounce back in the same way can be attributed to a couple of factors. The first is that U.S. Covid-19 relief policies directly supported laid-off workers, while European policies subsidized employers so that they could continue to pay furloughed workers, keeping workers more closely tied to their employers. The second is infection and death rates from Covid-19. In Canada, for instance, infections and death rates per capita were but a third of those in the United States. U.S. Covid-19 death rates, in contrast, remain the highest of the 10 richest large countries. By mid-May 2022, Covid-19 deaths in the United States had topped one million, the most of any country, and second only to Brazil in the number of deaths per capita among major countries.

Also, unlike in other economic downturns, women lost their jobs more often than men in the pandemic recession. Employment losses were greatest in the service sector, where women hold most of the jobs. Childcare services, where four-fifths of the workers are women, were especially hard-hit, and as of March 2022 the number of childcare jobs was still 11.1% below their pre- pandemic level. The labor force participation rate for parents fell precipitously in the pandemic, but the most for women with children—3.18 percentage points from January to September 2020—as reported by economist Kathryn Edwards of the RAND Corporation. The labor force participation rates of women of prime working age (25 to 54 years old) remain below their pre-pandemic levels, although they have reached the same level as 2019. But without the increased childcare services that had supported the steady rise of women’s labor force participation rates from 2015 to 2020, those rates are likely to remain depressed.

Those gender differences are also apparent in the quit rates of women who have returned to or remained in the labor force. Gusto, the payroll and benefits company, found that women’s quit rate in January 2022 was 4.1%, considerably higher than the 3.4% quit rate for men. And the gender difference in quit rates was largest in the states with the highest incidence of daycare and school closings.

More retired people. Following the pandemic shutdown the number of retired workers increased by 3.6 million from February 20020 to June 2021. That was more than twice the average rate from 2010 to 2020. The uptick, however, was due to fewer retirees rejoining the labor force rather than more new retirees, as a study by Kansas City Federal Reserve Bank economists Jun Nei and Shu-Kuei X. Yang documents. They point to “pandemic health concerns,” as the likely reason for the decline in the number of people transitioning from retirement back to employment. The percentage of the population over 55 years old in the labor force (employed or looking for work) in April 2022 is not only below its level at the onset of the pandemic, but also no greater than it had been in 2008. More self-employed workers. At the same time, the number of self-employed workers is well above the 2019 level, as Center for Policy Research economist Dean Baker has emphasized. Some of the self-employed are workers whose employers classify them as independent contractors to avoid regulation. But whether they’re self-employed out of necessity or choice, their larger number reduces the number of unemployed people looking for work.

Fewer immigrant workers. Krugman points to another factor that is contributing to the labor shortage—the decline of international migration into the United States since 2016. From 2020 to 2021, net international immigration (entries less exits of immigrants) added 247,000 people to the U.S. population. But that number was less than a quarter of the 1,049,000 people net international immigration added to the U.S. population from 2015 to 2016. A far smaller net inflow of immigrants reduces the number of workers in the U.S. labor force.

Moving on Up

All told, from the low point of the pandemic recession in April 2020 to March 2022, the number of job openings increased from one for every five unemployed workers to nearly two job openings for every unemployed worker. That surely has brightened job prospects for workers, at least until the Fed’s inflation fighting policies slow how quickly the economy grows and adds jobs. So, you better start making your list of what you hate about your job and checking it twice, just as the career coaches and compensation consultants recommend. If you move quickly, this just might be the year you get a better job, and even, like Johnny Paycheck, let your boss know what they can do with your old job.

JOHN MILLER is a professor of economics at Wheaton College and a member of the Dollars & Sense collective.

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