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Why a Weak Economy Isn’t Stopping the Great Resignation

Amidst recession and inflation, the American labor market continues to defy economic gravity.

According to conventional wisdom, the turnover tsunami that began in early 2021 should have run out of steam long ago. Nearly 30% of the entire American workforce voluntarily quit their jobs that year, with 2022 on track for a similarly startling statistic. This was initially thought to be an unsustainable phenomenon caused by unique circumstances surrounding the covid-19 pandemic. However, nearly two years later, it is clear that this phenomenon is more complex and enduring than anybody anticipated.

For month after endless month, press releases from the Bureau of Labor Statistics have continued to tell the same story. In every month, more than 4 million American employees voluntarily quit their job, amounting to between 2.5% and 3% of the total workforce. In every month, the United States boasts a whopping 10 or 11 million job openings, which is historically high in both absolute and relative terms. In every month, the labor market continues to exist in its own alternate reality, seemingly disconnected from what is happening in the larger economy - but why?

What does this strange paradigm mean for employers? Why was 2022 seemingly immune from traditional market forces, which would normally cause a corrective shift and cool down the red-hot labor market? Do these quitting workers not understand that a shaky economy should make them less eager to leave a steady job?

The answers to these questions are crucial for businesses everywhere, which are straining from pressures caused by high inflation, continued supply chain shocks, and an under-staffed or under-talented workforce. Desperation is in the air, with many companies scrambling to permanently replace workers with automation whenever possible and others attempting to recruit employees from completely different backgrounds and skill sets as a novel tactic to attract new talent. Employers should be concerned that this “lean and mean” workforce may not have the skill set necessary to perpetuate their businesses effectively, especially when more senior employees decide that it’s time to hang up the spikes.

The most likely answer to the enigma of 2022’s labor market is also one of the simplest: today’s employees are basing their behavior on a completely different value set than in the past. The tumult of 2020-21 fundamentally changed perceptions and expectations around the role that employment plays in American life, with workers everywhere using a new calculus to determine whether their job, or whether having a job at all, is “worth it.” For many who chafe at the demands of a traditional workplace and crave flexibility and freedom, the answer appears to be a resounding “no.”

The consequences of this mental shift among American workers are difficult for economists and traditional business leaders to understand because, from their perspective, employees appear to be acting irrationally. On paper, it is irrational for millions of people to voluntarily quit their job in a sub-par economic environment. On paper, it is irrational for hundreds of thousands of working parents to permanently leave the workforce and dramatically reduce their family income. On paper, it is irrational for younger employees to practice “quiet quitting,” where they intentionally disengage themselves from their job, do not make any special effort to get promoted, and do nothing more than the bare minimum of what’s expected in their role.

Indeed, practitioners of these trends may wind up regretting their decisions: it is entirely possible that a job market correction will occur in the future and put many of these workers in a tough position. In fact, most of the information available today would suggest that 2023 is extremely likely to bring a significant recession of some kind. However, for the moment, most American workers don't seem to care. Millions of people are continuing to walk out on their jobs like there's no tomorrow, making decisions that are arguably bad for their long-term careers and incomes but good for their short-term happiness and mental health.

In hindsight, it is clear that the confluence of normalized remote work, a transient and restless workforce, low engagement, and a historically tight labor market has led to the creation of a sort of “worker bubble” where talent is more highly valued than at any other time in recent history. This bubble is currently allowing employees to defy economic gravity and continue to play musical chairs with various employers amidst economic conditions that would normally cause the country’s labor market to cool down.

This unusually-lengthy period of extreme labor scarcity puts businesses in a tough position, essentially forcing them to play both offense and defense simultaneously. For the foreseeable future, businesses must focus aggressively on recruitment and retention with one hand while guarding against under-engaged and overly-complacent employees with the other. Whether this state of affairs is an extended aberration or the new normal remains to be seen, but it’s safe to say that companies who are adept at this today will be better positioned to grow their organizations and effectively serve their customers tomorrow.

For more analysis on the Great Resignation and tactical retention advice, visit OneDigital’s Retention Reset Hub.