The most recent employment figures were released for December and the shrinkage of the labor pool continues as 4.3 million workers quit their jobs. This number represents the continuation of a trend that developed last year. From April through August, 19 million Americans or roughly 12% of the civilian workforce quit their jobs. It has been estimated that nearly half quit without securing a new job but were actively searching.
This trend has been coined, “The Great Resignation”, but was actually originated by Professor Anthony Klotz from Texas A&M University in 2019, prior to the onset of the pandemic. He presciently predicted a mass exodus from the workforce, that has accelerated as a result of COVID. Professor Klotz noted that past loyalties between employees and employers no longer exist. Nicholas Eberstadt, a political economist, explored the reasons for this trend in his 2016 book entitled Men Without Work. A central theme of the book was the impact of companies laying off older higher paid workers and replacing them with younger lower paid employees. This move has resulted in an unanticipated reduction of the labor pool. Young people have different priorities than older workers as they tend to be more focused on lifestyle issues that result in either refusing a job offer or performing their work with less diligence. Meanwhile, older previously laid off workers no longer trust companies and opt for more secure jobs such as teaching, consulting, or starting a business. The end result is a smaller, less loyal and more independent labor force.
Yet another factor in the reduction of the labor pool is the improved financial condition many workers have experienced during COVID. Both savings and debt reduction have significantly improved as a result of receiving stimulus checks and unemployment payments, as well as a dramatic decline in spending due to the shutdown of various retail sectors in the economy. Robust stock market and real estate gains have also enhanced household finances. As a result, job seekers are in a much stronger financial position to take their time and carefully choose their next job.
Health concerns about COVID infections and increased family obligations such as adult and child care have also caused individuals to carefully evaluate the net financial benefits of employment and to delay re-entry into the workforce. In the longer term, Eberstadt has pointed out that since 1977, the percentage of people receiving disability payments continues to rise and has more than doubled, providing yet another incentive for workers to remain idle.
In the short term, this shortage of workers has been exacerbated by the rising retirement of many baby boomers and strict immigration policies that have put a significant dent in the availability of foreign workers. In the long run, the decline in fertility in the United States may continue to limit the labor pool.
So what are the ramifications of this trend? Wages are rising and signing bonuses are offered to entice workers. With a shortage of workers and companies desperate to hire, unions have made a comeback and are in a strong position to attract new members as they are able to collectively negotiate for higher wages and benefits. Many workers are able to multi-task and work several jobs simultaneously for different companies with or without the knowledge of their employers. In fact, futurists have predicted that instead of a worker averaging 6 jobs during their working lifetime, they may work as many as 6 jobs at once. With workers “spoiled” by working at home, they are better able to dictate the terms of their employment and refuse jobs that require them to work in an office environment.
It is my view that as COVID is brought under control with the resolution of family and health issues and liquidity and asset prices begin to recede, the labor participation rate should rise. A more liberal immigration policy would provide a significant boost to the labor pool. While “The Great Resignation” has greatly increased employees ability to choose their job, this labor shortage will eventually wane and the pendulum will begin to reverse resulting in yet a new dynamic between employees and employers.
Clifford L. Caplan, CFP®, AIF®
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