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The Great Resignation could end if labor-force dropouts return to work

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The so-called ‘Great Resignation’ could end if and when people who have dropped out of the workforce decide to return to work, easing the labor shortage that is driving a hot hiring market, Barclays economists predict.

In September, a record 4.4 million people quit their jobs, but meanwhile companies brought on 6.5 million new hires, suggesting that the mass resignations are mostly driven by the chance to take a better opportunity.

The quit rate, as it is known, tends to closely follow the hiring rate. In times of low hiring, workers are reluctant to leave their jobs, but when opportunities are plentiful, they are quick to walk away.

In a new research note, economists at Barclays led by Michael Gapen predict that current trends will reverse if and when people who dropped out of the workforce due to pandemic-related issues return to work.

Worker resignations (red) tends to closely track the amount of hiring (blue) suggesting the 'Great Resignation' is a symptom of the hot jobs market offering many opportunities

Worker resignations (red) tends to closely track the amount of hiring (blue) suggesting the ‘Great Resignation’ is a symptom of the hot jobs market offering many opportunities

In September, a record 4.4 million people quit their jobs, but meanwhile companies brought on 6.5 million new hires (file photo)

In September, a record 4.4 million people quit their jobs, but meanwhile companies brought on 6.5 million new hires (file photo)

Although about half of all quits this year have been in the leisure and hospitality industry, about 20 percent have been in professional and business services, and the resignation trend has even hit the C-suite.

CEO turnover spiked in the first half of 2021, more than doubling from the prior six months, according to recruiting firm Heidrick & Struggles. 

‘We believe that this resignation dynamic is mostly a symptom of other underlying forces that are affecting labor market participation, rather than a cause,’ the Barclays economists wrote, according to CNBC.

‘Indeed, the high quit rate is a red herring for understanding the sluggish return of workers to the US labor market following the COVID-19 pandemic, in our view,’ they added. 

‘Instead, the true cause is a hesitation of workers to return to the labor force, due to influences tied to the pandemic such as infection risks, infection-related illness, and a lack of affordable childcare.’

The labor force participation rate refers to the percentage of working-age civilian adults who are either working or looking for a job.

That rate plunged precipitously during the early stages of the pandemic, and has never returned to its pre-pandemic levels. 

In February 2020, the labor force participation rate was 63.3 percent, and as of last month, it stood at 61.6 percent — a difference of roughly 3.5 million people who are no longer participating in the workforce. 

The US labor force participation rate (above) plunged precipitously during the early stages of the pandemic, and has never returned to its pre-pandemic levels

The US labor force participation rate (above) plunged precipitously during the early stages of the pandemic, and has never returned to its pre-pandemic levels

A ' Now hiring" sign hangs near the entrance to a FedEx in Miami Beach earlier this month. Companies are desperate for workers as labor force participation remains low

A ‘ Now hiring” sign hangs near the entrance to a FedEx in Miami Beach earlier this month. Companies are desperate for workers as labor force participation remains low

Some economists have speculated that this trend is driven in large part by early retirements, and thus unlikely to quickly reverse.

Indeed, older Americans have returned to the workforce at a much slower pace than younger people. 

Last month, the labor force participation rate for those age 55 or older remained just as low as it was in May 2020, at 38.4 percent, compared to 40.3 percent before the pandemic. 

Meanwhile, teenagers, the youngest segment of potential workers, are actually participating in the labor force at a slightly higher rate than they were pre-pandemic.

But the Barclays economists believe that even the trend toward early retirement will reverse once pandemic concerns ease, with many older workers coming out of retirement. 

‘Given the composition of retirees and nonparticipants, the higher reentry rates for non-retirement age workers, and the unusually high participation rate for near-retirement age workers in the lead-up to the pandemic, our expectation is that flows out of retirement in the coming quarters will be much higher than normal,’ they wrote.

The Barclays note included one fascinating observation: that married workers have tended to be much more reluctant to return to work than single workers.

The Barclays economist noted that both married men (above) and women have tended to be much more reluctant to return to the labor force than single workers

The Barclays economist noted that both married men (above) and women have tended to be much more reluctant to return to the labor force than single workers

Married women (above) have also returned to the labor force at a lower rate than single women

Married women (above) have also returned to the labor force at a lower rate than single women

This could be due to the financial safety net provided by a working spouse, as well as concerns about affordable childcare.

The trend held true for both married men and married women, who are currently both participating in the labor force at a lower rate than they were pre-pandemic. 

‘This general profile itself gives us reason to believe that many of the missing workers will gradually transition back to work,’ the firm said. 

‘This is supported by survey evidence from other sources suggesting that COVID-related considerations — such as infection risks, illnesses, and pandemic income supports — remain important contributors to ongoing participation hesitancy.’   



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