The United States is currently in the midst of a “Great Resignation.” So far this year, roughly 1 in 4 Americans have resigned from their jobs. In October, 4.2 million Americans quit their job, following September’s record-setting 4.4 million resignations. Moreover, according to Business Insider, nearly three-quarters of American workers are actively considering quitting in the near future.
In a year already unprecedented in many ways, the record-breaking resignation numbers indicate a reshaping of the labor landscape. Understanding who is quitting and why will help businesses retain their employees.
Who is quitting?
Mid-career employees have seen the highest rates of resignation. Resignations among 30 to 45 year olds have seen a significant increase compared to the past few years. Interestingly, resignations among entry level employees (20 to 25 year olds) have actually decreased. Early resignations account for about one third of currently unemployed persons.
Resignation rates vary state to state. In August, Florida saw 3% of its workforce quit–about the national average. Neighboring Georgia, on the other hand, had the second-highest rate of resignations in the country at 4.2%. Economists see a correlation between rural areas and higher resignation rates. They also suggest that areas with higher COVID-19 numbers experience greater employee resignations.
According to the Harvard Business Review, resignations are highest in tech and health care.
Due to the current tech industry boom, tech companies are aggressively recruiting new employees through higher salaries and other benefits, causing high worker turnover. Meanwhile, resignations are high in the healthcare industry because workers feel burned out and underappreciated in their increasingly stressful role during the pandemic.
The service industry has also experienced high levels of resignations, causing a labor shortage. Like healthcare workers, service workers have endured increased workplace stress during the pandemic. There has also been a documented uptick in customer rudeness: for example, US airlines report over double the number of unruly passengers in 2021 compared to last year. Service workers–front-line workers without the option of remote work–also experience higher risk of COVID-19 exposure. These combined stressors, along with other factors including disrupted childcare arrangements during the pandemic, have led many employees to walk off the job.
Why are so many people quitting?
The current unemployment rate is still higher than it was in 2019. While this may seem like a bad sign for economic recovery, according to Stanford economics professor Pete Klenow, it’s possible that the 3.5% unemployment rate in 2019 was an anomaly. He says the current 4.5% unemployment rate might be close to an acceptable return to normal.
What’s more unusual about the current job market is the record number of job openings over the past few months. This trend frustrates employers, since it seems counterintuitive to the higher unemployment rate. Understanding why so many people are quitting, even while unemployment is higher than normal, is essential to attracting and retaining employees.
Klenow characterizes the labor landscape as both a supply and demand problem. “If you think of the pandemic shock as a persistent reallocation shock, there’s going to be a lot of disruption of employment.”
Moreover, labor economists posit that the experience of living through a pandemic has fundamentally changed low-wage workers’ mindset. Arindrajit Dube, one of the leading economists studying the impact of the minimum wage, says that “workers at low-wage jobs [have] historically underestimated how bad their jobs are” and now the pandemic has forced them to reconsider what they are putting up with.
In this vein, the “Great Resignation” can also be seen as the “Great Rethink” by American workers, particularly those working low-wage service industry jobs. Workers have re-evaluated what they want out of a job. Higher wages is one obvious goal, but others are less tangible. For example, the desire for better workplace conditions may encompass everything from physical safety to the feeling of being appreciated and valued for hard work.
Joe Brusuelas, chief economist at RSM, believes this may be the start of the “golden age for the American worker” as workers are now confident that they have the bargaining power to secure reasonable wages and influence working conditions.
This shift in bargaining power is demonstrated by the surge of strikes this fall. Not surprisingly, strikes are most prevalent in industries with high resignation rates, since the labor shortage in these industries shifts power to workers. In health care, over 30,000 Kaiser Permanente employees threatened a November strike for higher wages. In the service industry, McDonald’s employees walked off the job on October 26 in 12 cities–including Miami and Ft. Lauderdale–to protest workplace sexual harassment and violence.
Similar to the period after other major economic and social disruptors (like World War I and II), the post-pandemic economy will look very different than before. Employers who refuse to acknowledge that bargaining power has shifted towards labor will continue to struggle with worker retention. Those who embrace the new labor market will attract employees who have a better understanding of their place in the economy and society.
What does this mean for businesses?
There are a few key takeaways.
First, many companies instinctively understand that increasing salaries and benefits is important to employee retention. But a recent McKinsey survey shows that employers tend to overlook relational elements that are very meaningful to their employees. Workers crave a supportive and caring team environment. Above all, they want to feel valued by their organization and by their manager. In this department, small businesses, like Miami’s numerous mom-and-pop shops, might have an edge over large corporations. Small businesses looking to retain their employees should consider how they can convey to their workers that they are valued by management–and how they can do this better than their larger counterparts.
Second, according to a survey by Digital.com, one-third of workers who quit this year chose to start their own business. This means that new small businesses will be emerging in the coming months to replace those that shuttered during the pandemic. It also indicates that, in general, Americans remain very interested–perhaps even more interested than before–in being their own bosses. In light of this, current small businesses might consider how they can give their employees the agency and flexibility that many crave.
Third, people quitting begets more people quitting. This is especially problematic for small businesses. When one employee resigns, it places more pressure on remaining employees. Particularly in the leisure and hospitality industry, this will be an added stressor on top of reportedly ruder customers and the risk of contracting COVID-19. Prior to the pandemic, employers might have considered low-wage workers to be easily replaceable. Today, retaining each employee is vital to preventing a mass exodus which could leave small businesses floundering.
Conclusion
The current labor shortage seen in the service industry is a short-term problem. The shift of power towards labor, on the other hand, is likely to be a longer-lasting effect of the pandemic.
In order to compete with other businesses, employers need to think creatively about how to attract and retain employees. A successful strategy will enable small business owners to weather the storm of the current labor shortage while simultaneously allowing workers to find more satisfaction in their chosen career.
