Human prosperity and well-being advance, in the context of human flourishing, where human agency is buttressed by robust market and nonmarket institutions. A strong economy is built upon the ethos of hard work, industriousness, perseverance, and innovation. Market economies require a commitment to hard work and entrepreneurship in which workers and employers are subjected to the discipline of profit and loss. Sustainable economic growth occurs only where societies embrace the ethos of work and the spirit of unrelenting human creativity. Yet we find ourselves in a moment. It is a moment of insecurity about the future of the U.S. economy, the course of the pandemic, and the ongoing government response. The “Great Resignation” sits within this moment and is generating buzz, along with the question: Are workers calling it quits in droves, and should we be worried?
So much has happened over the past 25 months to get us here. In March of 2020 the world came to a screeching halt as the COVID-19 virus rapidly spread. Schools from pre-K to college shut down and transitioned to distance learning. Restaurants became curbside and to-go only. Many retail establishments shuttered their doors or frantically scrambled to online sales. In the spring of 2020, the U.S. economy faced its biggest contraction ever with a 32.9 percent drop in GDP (gross domestic product) in one quarter. In April of 2020, the Bureau of Labor Statistics reported that unemployment surged to 14.7 percent, which is the highest and largest month-to-month increase in the history of data collection. The U.S. government responded with four special appropriation laws, which to date total $3.4 trillion. Many of these programs were designed to support the economic contractions and unemployment problems related to lockdowns and other policy measures that forced business closures and disruptions. To date there have been three rounds of stimulus checks for eligible Americans, totaling $850 billion in direct payments to taxpayers. Additionally, the CARES Act stipulated an additional $600 per week of additional unemployment compensation.
Demand curves slope downward. When we increase the financial benefits of not working, we can generate less work. These financial benefits enacted during the pandemic cannot and will not last forever, but they can create disincentives to get back to work. Or induce workers to switch career fields altogether. This will impact labor markets particularly in industries like retail and food. It is no coincidence then that you see hiring signs everywhere you go, from your local restaurant to the Home Depot around the corner. It’s why my 17-year-old babysitter was promoted from hostess to waitress within two months of working at the local restaurant because they could not find willing employees. She makes so much money I can barely get her to watch my children — she has much better opportunities in the market.
The Great Resignation, though, is not the only result of these pandemic policies. In fact, in some parts of the labor market we see positive trends. For those in professional, or more white-collar roles, things have been chugging along smoothly. The pandemic demonstrated to bosses and employees that remote work was possible and even productive. The most recent job report for March shows that nonfarm payroll is up by 431,000 workers, and the unemployment rate fell to 3.6 percent, down from 3.8 percent a month earlier. The report also shows that the number of permanent job losers (people whose jobs ended involuntarily and began looking for work) fell by 191,000 to 1.4 million, which is still higher than in February 2020. The labor force participation rate increased to 62.4 percent this March, which is also below what it was in February 2020.
These numbers help us understand the broader picture. The pandemic, along with the government response to the pandemic, shifted the way we do things — as well as the incentives employees face — but it’s an employee’s market. Workers have options, which is why they can voluntarily decide to call it quits. The Great Resignation got its name due to trends we have seen this year that began last April: the greatest number of “quits” recorded. Workers, however, are not being forced out of jobs; rather, they are switching jobs because they have a variety of opportunities, and employers must rise to the occasion. This is why you see Walmart employees starting at $17 per hour with paid college tuition and Amazon warehouse jobs offering up to $3,000 sign-on bonuses.
Many of the employees who have permanently quit are seniors aged 65 and older, who left the labor market in 2020 at a higher rate than ever recorded. Seniors are retiring early, fueling the concern about the Great Resignation, but perhaps we should not be overly worried about this. If you have the savings to retire early, then you can. This is also a signal that these employees have options. The key to understanding this overall phenomenon is the voluntary nature of quits. Most employees are changing jobs, which requires that you quit one job and you take another. Therefore, the unemployment rate is not skyrocketing. If we were observing massive permanent job loss, this would be cause for great concern.
The best we can hope for in the future is that the government doesn’t meddle in labor markets by distorting incentives for work and productive entrepreneurship. We want workers to have options, and that’s exactly what they have. As F.A. Hayek said: “The necessity of finding a sphere of usefulness, an appropriate job, ourselves is the hardest discipline that a free society imposed on us.” Indeed. The future of the U.S. economy and the well-being of us all depends on that. Let’s get to work.