Labor's Love Lost: A Deep Dive Into "The Great Resignation"

It’s been called “Mass Attrition,” “The Big Quit,” and “The Great Resignation.” These epithets all attempt to summarize the sea change that has come over the American labor market. COVID-19 appears to have created permanent changes in the workforce, leaving businesses short-handed and economists bewildered.

While there are still millions of people who have not held jobs since February 2020, U.S. labor market conditions are consistent with full employment. Wages are rising rapidly, contributing to a surge in inflation. Job turnover is at a record level, and there are 10.6 million unfilled roles in the U.S. economy.

A series of studies have attempted to understand the root causes of these developments. A scan of this literature reveals that there are several different forces at play, all of which intensify trends that had been underway prior to COVID-19. As they evolve, they will have significant short- and long-term consequences.

The Old World

When evaluating whether a situation is good or bad, we often use our most recent experience as an anchor. And it’s a lofty comparison in this case. Stretching over ten years, payrolls grew by 22.7 million during the last expansion. The unemployment rate fell from a peak of 10% in 2009, holding at or below 4% for two years prior to the pandemic.

Weekly Economic Commentary - Chart 1

The labor market recovery was broad-based, reaching every potential worker. The labor force participation rate of workers over 65 climbed by two percentage points in the two years leading up to the COVID-19 crisis, representing 1.7 million workers. Minorities also benefitted from the last recovery: the Black unemployment rate fell from 16.8% in 2009 to below 6% in 2019. Jobs were available to just about everyone who wanted one.

Full employment can be a mixed blessing, though. Tight labor markets can pressure wages and inflation. But fears of inflation never came to be. Nonsupervisory wage gains throughout the last cycle were tepid, averaging only 2.4% annually during the last decade. This was well below the norms of prior cycles, and provided further evidence that firms had significant leverage over the workforce, even at full employment. The wage share of gross domestic income has fallen steadily from its peak in 1970, as worker protections have faded and globalization and automation have reduced the costs of labor.