Why quitting your job is good for the economy
They call it the Big Quit. More Americans are quitting their jobs than at any time since the turn of the millennium. Much has been written about the reasons, from burnout during the pandemic to a “big re-evaluation” of what people expect from their jobs.
But this is not just an interesting sociological phenomenon. It is also a stubborn economic indicator with an underestimated impact on wages and productivity. The recent wave of job cuts needs to be put in context: over the past decade, people haven’t done enough.
The proportion of workers leaving their jobs (which Nicholas Colas, co-founder of DataTrek Research calls the “Take This Job and Shove It” index) generally evolves in tandem with the health of the labor market. People are more likely to move on for something better when the opportunities are plentiful and hang on to their current job when unemployment is high.
When the financial crisis hit, for example, the monthly quit rate in the United States fell from around 2.2% in 2007 to 1.2% in 2009. In the United Kingdom, the number of people leaving their jobs fell by more than half.
But after the recession ended, it took an unusually long time for people to quit their jobs. In both the United States and the United Kingdom, it was not until 2016 before the number of dropouts returned to pre-recession levels. Resignation behavior in the UK stabilized at that time, although the labor market exploded and the unemployment rate fell to its lowest since the 1970s. Data for other countries is hard to find, but the Australian Treasury identified a similar phenomenon of surprisingly depressed job change behavior in an article in 2019.
This is important because the people who leave their jobs may not be just a barometer of economic health – some economists believe they are the driving force behind it. People who voluntarily leave their jobs for new ones tend to move up the career ladder to positions that use or develop their skills better. UK data shows that the growth in median hourly earnings for people changing jobs was 7.3% in 2018, compared to 3% for people who kept their jobs. A 2019 Australian study found that local labor markets with higher job change rates had higher wage growth. And while the correlation of causation is still difficult to disentangle, economists at the Federal Reserve Bank of Chicago observed in 2015 that resignation rates appear to precede wage growth by one to two quarters.
There is also a link with productivity. The OECD has found that higher labor reallocation correlates with higher productivity growth. Andy Haldane, then chief economist at the Bank of England, argued in a 2019 speech that the reluctance of British workers to change jobs since the financial crisis helped explain the economy’s ‘lost decade’ for wage and productivity growth.
Risk aversion and post-crisis insecurity have meant that “a strong recovery in employment has not allowed workers to move up the employment ladder vigorously,” he said. “The result has been moderate rates of pay and, in particular, productivity growth. “
The consequences of the pandemic-induced recession could not be more different from those of the financial crisis. The rate at which people quit their jobs in the United States fell from 2.3% to 1.6% during the pandemic, then rebounded rapidly to 2.7%.
There was talk of well-paid but exhausted professionals giving up the mad rush for lower-paying, less stressful jobs. As one FT reader put it, “Now everyone just wants to wear yoga pants and play with their dog. Does this mean that wages and productivity could fall rather than rise?
So far, the data does not support this narrative. People who quit at the highest rates in the United States work in low-paying industries such as retail, food, and hospitality, and the median wage growth for people who change jobs is 4 , 1% against 3.1% for those who stay.
Rather, it appears that people are taking advantage of increased demand and a tight labor market to increase their wages and working conditions in areas where they have been poor for many years. It is still too early to judge the impact on productivity.
In the UK, the number of people leaving their jobs has also rebounded rapidly, but only to pre-pandemic levels. The “Big Quit” remains for the moment an American phenomenon.
But the Take This Job and Shove It index will be an important metric to watch. The UK government said last week that it wanted to foster an economy “with high wages and high productivity”. The British could do their part for the cause by quitting their jobs for something better.