Why the Great Resignation? 12/7

Worker power or adjustment toward equilibrium?

The U.S. labor market is in an unusual state. Recent data from the job openings and labor turnover survey show record quit rates. Employers report difficulty filling positions. Although employment has not recovered to pre-pandemic levels, the unemployment rate is low, which suggests that many people have left the labor force.

Many factors could be affecting labor supply. The writer at Infovores has looked at some of these. He notes that employment rates have behaved similarly for households with and without children, which goes against the hypothesis that a lack of child care is the main driver. He suggests a sort of burnout spiral, in which overworked employees quit, leaving behind colleagues who become even more burned out, leading to more quits, etc.

Austin Stone offers a related hypothesis.

The Great Resignation is a blue-collar movement. Data from the Department of Labor and privately-conducted surveys bear this out. In short, the backbone of America, the ones who keep the country up and running, are walking off the job. And we all know why.

We’ve all walked into a restaurant or grocery store where masks are not required for customers, but “corporate office” wants all employees to wear them. We’ve all had a friend or relative whose job has been threatened by public or private-sector vaccine mandates. We’ve watched the disunity over COVID restrictions split churches and tear school districts apart—so why should we be surprised it demotivates workers? Working in these conditions comes at a price—and for blue-collar jobs especially, that price is not justified by the salary. Workers in these jobs value job security, schedule regularity, and constancy of tasks—a job to be proud of, but not to prioritize over values, free time, or personal dignity.

My own perspective on the labor market is that the economy is unusually far from equilibrium. Prices and wages are too low, so that we have “shortages.” Relative wages and prices are out of alignment, so that we have temporary over-supply in some sectors and under-supply in others.

Think of the employees who prefer to not go into the workplace every day and whose employers learned during the pandemic that remote work and work-from-home can be managed. This “laptop class” has received what amounts to a windfall of non-monetary compensation.

But other workers have gotten a cut in non-monetary compensation. Their workloads have increased. They have suffered a loss of autonomy (having to wear masks, perform cleansing rituals, get tested regularly, etc.)

The divergence in non-monetary compensation has left labor markets out of equilibrium. To move toward equilibrium, monetary compensation for remote and work-from-home employees must fall relative to that of workers forced to engage in germaphobe theater. This adjustment will probably take place in an inflationary environment in which everyone’s pay goes up, but the workplace-bound get higher raises than the laptop class.

To move toward equilibrium, the price of shipping goods by truck will be much higher. That is what I infer when someone claims that there is a “shortage” of a few hundred thousand truck drivers. Some of the higher shipping prices will be passed through to truck drivers as higher pay, and perhaps more people will choose to become truck drivers as a result. But not a few hundred thousand more, which is what it would take to keep shipping prices from rising.

To move toward equilibrium, many firms will have to raise prices or go out of business. That is because the cost of obtaining and retaining workers is higher than they seem to realize. Fundamentally, that is because deficit spending has created too much paper wealth relative to the economy’s productive capacity. Too much money chasing too few goods, as it were.

Although inflation has surprised and puzzled some people, it has seemed clear to me for quite a while that prices and wages need to rise. Higher prices will eventually cause demand to cool. And higher wages will resolve the labor “shortage,” as some firms realize that at a higher wage, required by market forces, it is not so profitable to add workers.

We are seeing “the Great Resignation” because markets are out of equilibrium. Once wages and prices have adjusted upward, and once we see more workers in sectors where they are most wanted and fewer workers in sectors were there is relatively less need, the high quit rates and other peculiarities of today’s economy will fade.