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The great resignation is not going away

What is happening to the US labour force? The question is being asked not only in light of the wage rises that are an important part of the inflation story in the US, but also of the millions of Americans who have quit their jobs since the pandemic began. The “great resignation” reached a peak in November, with 4.5mn Americans leaving jobs even as openings remained elevated, the largest number since 2000.

This is not a uniquely American phenomenon. China’s “lie flat” movement, in which young people are turning their backs on the daily grind, is gaining popularity. In Japan, known for long office hours, the government has proposed a four-day working week. A recent Microsoft survey found 41 per cent of the global workforce is considering giving notice. Reasons range from digital burnout amid Covid-19 to a sense of isolation and loss of networks.

But the US labour market is tighter than many others, and looks set to stay that way for some time. Labour force participation in the US dropped further than in other advanced economies and remains depressed relative to them. So companies are fighting harder for workers, and unit labour costs are rising sharply compared with pre-Covid trend rates, while in other rich countries, those costs are declining.

Part of this may be a result of how the US chose to handle the pandemic. While Europeans protected jobs, America protected growth. Germany, the UK, France, Italy and Spain supported some 32mn jobs via furlough schemes at the peak of the pandemic’s first wave in April 2020, and millions are still on such schemes. The US allowed companies to lay off whoever they wanted, and gave cheques to the unemployed. But this meant that companies had to scramble to replace workers quickly as the economy came roaring back, particularly in hard-hit service sectors. That churn, coupled with pandemic unemployment payouts, gave millions of workers the sort of leverage they had never had before.

Leisure, hospitality and restaurant work are the areas with the highest rates of churn. As a recent IMF report noted, many workers in such areas may simply be unwilling to return to jobs in which they were overworked and underpaid. Others are leveraging the tighter labour market to seek better jobs, as companies competing to restaff offer better pay and benefits.

According to data from the Atlanta Fed, workers who shifted jobs between August and October of last year had a median wage increase of 5.1 per cent, versus 3.7 per cent for those who stayed put. While much of the churn is at the lower level, as those wages rise it puts pressure on employers to increase salaries higher up the ladder, which could incentivise more job-hopping.

It is too soon to say if the great resignation will end when all the pandemic-related economic dislocations work their way out of the system, or if it heralds some new, existential shift in labour markets. It is worth noting, however, that Generation Z seems particularly disaffected. The Microsoft survey showed younger workers were less engaged by their jobs, and less eager to bring new ideas to the table. Some 60 per cent of Gen-Z respondents said they were “struggling” at work.

Some of this may resolve with a return to the connections of the office. But there is a growing sense that Americans are rethinking their work-life balance. This will probably fuel calls for generous European-style social safety-nets. It will also favour companies that find the right mix of hybrid work arrangements, offering security and flexibility. Capital has dominated labour for half a century. But the tables are turning. Employers, take note.

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