Despite the unprecedented economic shock created by the pandemic, U.S. GDP returned to pre-pandemic levels much faster than expected by Q2 2021. With rising demand and staff shortages following layoffs during the previous 12 months, economists also expected employment to return swiftly to the status quo.
But instead, millions quit their jobs voluntarily just as economic normalcy seemed to resume, in what is dubbed as “The Great Resignation.”
Various theories explaining this phenomenon have been proposed, but the important question for long-term investors, is whether this indicates a fundamental shift in the economic landscape. Some believe that it does, including Atlantic writer Derek Thompson, who describes the resignation phenomenon as ”a centrifugal moment in American history.”
With more data now available, we can analyze this trend to understand its implications for investors.
What is happening?
Data from the Organisation for Economic Co-operation and Development (OECD) shows that while the trend is a global one, it is most pronounced in the U.S., where the labor market is more flexible, and the social support system is more limited than in Western Europe. The U.S. data may therefore be more insightful.
An average of 3.95 million Americans quit their jobs each month in 2021, the highest figure on record. The quit rate began to climb from the beginning of 2021 to a peak of 5% in August. The consumer discretionary sector (leisure, retail, hospitality) was the hardest hit.
Predictably, the trend was felt in the employment market. The number of job openings in the second half of 2021 rose 40% compared to pre-pandemic levels (7 million to 10 million). Those employed are in a stronger bargaining position, as evidenced by rising labor activism across industries in 2021.
In the previous three economic crises, there was no noticeable contraction in the U.S. labor force (the number of individuals working or seeking work). Surprisingly, the monthly resignations in 2021 were well above the recent average of 3 million monthly.
Source: CaixaBank Research, based on data from BLS (via Refintiv)
Why is this happening?
Major economic trends tend to be the result of multiple factors, but which are the most impactful, and which are likely to persist even after the return to previous conditions?
A common explanation is disenchantment with the workplace, particularly in lower-paid hospitality jobs. But this is merely a market problem that should be solved by wages rising to a new demand-supply equilibrium.
Resignations among mid-career employees (30 to 45 years) increased 20% between 2020 and 2021, which implies that the strain of work and heightened responsibilities of childcare could be a contributing factor. As school restrictions are lifted, this is likely to recede.
The combination of unemployment benefits, emergency stimulus programs, and a robust real estate and the stock market, may have also reduced the pressure to return to work for many groups (in both the wealthy and less well-to-do camps). Given the temporary and/ or cyclical nature of these factors, their effect is unlikely to persist.
A fundamental driver unrelated to the pandemic is the natural decline in the labor force from falling birth rates as the older baby boomer workforce begins to retire. A study by the St. Louis Fed found that the number of boomers who retired in the first half of 2021 were 2.4 million more than expected, implying that the pandemic may have hastened a trend already underway.
What does it mean for investors?
As the world emerges from the pandemic, U.S. inflation increased dramatically in recent months. According to the US Department of Labor, consumer prices rose 7.5% to a 40-year high.
 The Atlantic - https://www.theatlantic.com/ideas/archive/2021/10/great-resignation-accelerating/620382/
 OECD - https://www.weforum.org/agenda/2021/09/oecd-employment-outlook-covid-19/
 SHRM - https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/interactive-quits-level-by-year.aspx
 Gusto - https://gusto.com/company-news/a-real-time-look-at-the-great-resignation-december-2021#:~:text=Since%20that%20point%2C%20the%20quits,was%203.1%25%20in%20December%202020.
 Statista - https://www.statista.com/statistics/217943/monthly-job-openings-in-the-united-states/
 Washington Post - https://www.washingtonpost.com/business/2021/10/17/strikes-great-resignation/?itid=lk_inline_manual_9
 Caixa Bank - https://www.caixabankresearch.com/en/economics-markets/labour-market-demographics/great-resignation-paradigm-shift-us-labour-market
 Bureau of Labor Statistics - https://www.bls.gov/news.release/pdf/jolts.pdf
 Harvard Business Review - https://hbr.org/2021/09/who-is-driving-the-great-resignation
 Federal Reserve Bank of St. Louis - https://research.stlouisfed.org/publications/economic-synopses/2021/10/15/the-covid-retirement-boom
 US Department of Labor - https://www.bls.gov/news.release/pdf/cpi.pdf
 Reuters Factbox - https://www.reuters.com/business/finance/what-global-banks-forecast-fed-rate-hikes-2022-2022-02-11/