We explore the causes, why it’s affecting jobs across the economy, and what it means for the future as wages climb competitively, and may well push inflation higher.
Tune in to the Welcome to the New Normal audio podcast now and follow along with the script below.
Whatever you call it, it’s a THING… especially in the United States, and as we’re beginning to see, it’s spreading to Europe and elsewhere, bringing consequences many people didn’t imagine.
We’ve reported on this before. People are quitting their jobs and looking for options that give them greater flexibility in this post-pandemic world. And higher salaries too.
And there’s more to it. So what’s the news?
Records keep getting broken, and the impacts and challenges are becoming more obvious.
A record 4.3 million U.S. workers quit their jobs in August. And if we look back to April 2021, it adds up to a total of 20 million people in one quarter.
It’s a big headache for the tech industry, but it goes well beyond that.
Ok, so what’s happening in tech?
Well according to Techcrunch 61 percent of HR professionals said finding qualified developers was the biggest recruitment challenge of 2021.
And the growing presence of high-paying Silicon Valley tech firms in the UK, and other countries too, is making tech recruitment for smaller firms even more of a headache.
But the problem goes well beyond tech, and it’s something that’s going to seriously reshape our lives.
And I get the feeling that we are only beginning to really feel the effects of this pandemic on our work, home, and even economic and geographical realities.
So, what’s going on, and is it coming to a country near you?
According to new data from the US Labor Department, most of the quitters in the Great Resignation don’t work in tech, but in the retail and hospitality sectors.
These employees are fed up with mind-numbing, difficult, and underpaid jobs. And the pandemic has woken them up to the idea that there is more out there.
And they’re taking the bull by the horns and doing something about it.
Is this something new, and should we be worried about it?
It’s actually nothing new. And it’s nothing bad, on one hand at least.
Journalist Derek Thompson, writing in the Atlantic, notes that people in the 1960s and ’70s quit their jobs more often than they have in the past 20 years, and the economy was better off for it
But he writes that since the 1980s, Americans have quit less, and many have clung to crappy jobs for fear that the safety net wouldn’t support them
This was exacerbated by the 2008 financial crisis. The idea was: if you have a job, hold on to it.
Not any more. With more and more vacancies, people have decided to shake off their fear of losing the safety net, and boldly going for something new.
Derek Thompson writes that the Great Resignation is speeding up and it’s created what he calls a centrifugal moment in American economic history.
The Financial Times, in London, views this so-called “inflection point” in the US labor market as something extremely positive:
The FT’s Sarah O’Connor writes that Job quitters might not just be a barometer of economic health — some economists believe they are a driver of it.
Indeed, People who leave jobs voluntarily for new ones tend to move up the career ladder into roles that are better suited to their skills.
UK data shows median hourly earnings growth for job changers in 2018 was 7.3 percent compared with 3 percent for people who stayed in their jobs.
And there’s a link with productivity. The OECD has found that higher labor reallocation is correlated with higher productivity growth.
Why’s that? Well, if you’re still in a job that you’re holding on to for safety reasons, you’re going to be less motivated than someone who’s on a Fresh start, an exciting project, and earning much more than you.
So is it coming to a country near you?
In the UK, the FT reports, the number of people quitting their jobs are back at pre-pandemic levels, and the report concludes that the “Big Quit” remains an American phenomenon, for now.
But research does show that the FT may be wrong and that the Great Resignation is indeed going global.
Europe is dominated by the Social Democratic model. Safe jobs, higher taxes, safety nets, and pensions.
The economy and the labor market are less free, less fierce, and tempestuous than in the US. It’s a matter of opinion if that’s a good or a bad thing…
But the Great Resignation is definitely coming.
Research by Microsoft shows that 40 percent of the global workforce is considering leaving their employer this year, and suggests that a thoughtful approach to hybrid work will be critical for attracting and retaining diverse talent.
The Great Resignation is being keenly felt in Germany, Europe’s largest economy
According to an IFO Institute survey, more than a third of German companies are reporting a dearth of skilled workers.
Christoph Hardt, the co-founder of Berlin-based COMATCH, a global marketplace for independent consultants, told Wired that most of his clients can’t recruit and that demand has doubled since January.
So what’s happening? Hardt believes, just like the container ships and lack of lorry drivers that are making it take so long to get a new phone, there is a bottleneck of suppressed demand.
“If businesses want to grow, they need to hire. And that demand is fast outpacing the job market’s supply, causing a record number of vacancies.
And as we’ve seen, this isn’t just highly skilled people, it’s bar staff, truck drivers, factory workers.
And according to the Macroeconomics Policy Institute, it all boils down to wages.
The Institute’s head of European Economics Andrew Watt said that “Frankly, this is a pay issue,”
“Wages will have to increase in these sectors to get people back into tough, low-paid jobs. And that’s no bad thing.”
This week’s number is 4.1%
German inflation accelerated in September to 4.1%, its highest since December 1993, driven up by energy and food costs. It’s one of the highest rates in Europe. In France, in September it was 2.7%.
What’s this got to do with people quitting and looking for new jobs?
Well, as we’ve seen, people are quitting their jobs and looking for new work with higher wages.
And then inflation comes into the mix.
This is a sensitive area, so we’ll tread carefully.
Wage growth and inflation are strange bedfellows.
And we’ll try to keep the economics really simple.
Firstly, if inflation goes up, there’s pressure on companies to increase wages so that their employees don’t lose spending power.
But it goes the other way too.
If people suddenly start getting paid more, when everyone is flush with cash, it has a tendency (all my clients in the financial sector tell me this) to be one of the main DRIVERS of inflation.
It’s called a wage-price spiral.
It can be seen in the property market here in France. People are earning well, they can work from home, they no longer want to work in cramped cities, so they are all looking for houses in the countryside, and consequently, the price of real estate outside big urban centers like Paris has skyrocketed.
The Germans are obviously very sensitive to this. Economists there are keenly aware of what happened between the wars, and the devastation of hyperinflation.
The ECB’s Christine Lagarde says all this is transitory. I get what she means by that is it’s temporary.
But the Great Resignation is spreading, it’s going to impact us in all sorts of ways, and we should try to get ready for it.
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