Why do we bother to work? Why did we choose to work for our current employer? For most of us, these two questions are relatively simple to answer and distinct. Yet in the “big resignation” or “big resignation” debate, as the phenomenon has become known, they are often confused, confusing the message for inflation and economic policy.
We work because he pays the bills, or because we appreciate him, or because a job offers a better path in life than realistic alternatives. Our choice of employer is a completely different matter. While many people have personal reasons for staying in a particular job, it will ultimately depend on the relative conditions of the job offered, including crucially our pay.
The same distinction is true when people quit their jobs. Voluntarily quitting for a better deal has little to do with the decision to quit working altogether.
When people have a better deal and tell their bosses “you can take this job and push it”, that’s a strong signal of a tight labor market, which will push companies to pay more in the months to come. probable inflation consequences. In an article for the Peterson Institute this week, Jason Furman and Wilson Powell, show that in the United States, the quit rate has already given the best signal of salary increases to come. It is at an all time high. The Federal Reserve should take note.
The UK has more summary data on quits, but in the third quarter of this year, Britons told their employers to push them to national record levels. These were even stronger compared to the past than those in the United States. This is a sure sign that inflationary pressures are not likely to ease as quickly as the Bank of England would like and that monetary policy should cool things down a bit.
While dropout rates tell a clear story in the US and UK, the message of how many people are participating in the workforce is much more subtle. More importantly, there are huge differences between countries.
Italy has long languished with labor participation rates below 50 percent; France and Spain are also weak in getting a large part of society to work. There is not much to suggest that macroeconomic policy is too strict here and on the contrary, all indications are that there is a need to encourage more activity as an aspect of improving market participation in the market. job. This would improve both supply and demand in these economies without obvious inflationary consequences.
For large economies that have labor market participation levels of over 60% – the US, UK and Germany – the changes during the Covid-19 period are themselves eclipsed by longer-term trends. The increase in participation in Germany is due to the fact that employment has become more attractive to women. The same trend in the UK has been driven by a flexible labor market and punitive levels of social security for those out of work. In the United States, by contrast, declining participation levels over the past decade have been caused by a lack of suitable child care for those with family responsibilities and an increase in illness and disability, particularly among children. men.
The one small exception to the rule that long-term participation trends dominate the picture comes from the United States. The pandemic has seen even more people decide the job market is not for them, mainly leading to a wave of retirements. While this probably has little inflationary signal, it certainly does not indicate a significant slowdown in the labor market and low inflationary pressure.
The Great Resignation is an amalgamation of two separate stories: inflationary job change and likely neutral trends in labor market participation. If you want a guide to future inflation, ignore labor force participation and look at quits. It’s not a pretty picture.