Workers have more power right now to negotiate terms in tight labor market

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Reports of the so-called Great Resignation may have been exaggerated.

Over the past several months, a rapidly growing number of Americans have left their jobs – more than 4.4 million alone in September, the most recent month for which data is available.

During that time, much of the narrative has focused on burned-out employees stomping out of their jobs – the “Big Quit” as some of have put it, in which workers are demanding higher wages, better working conditions and more mobility.

While worker dissatisfaction is an obvious factor behind quits whenever they occur, there has been increased focus lately on how employers can find incentives to keep workers from leaving.

However, the issue has been complicated and likely clouded by the pandemic.

Economists at Barclays have a different theory. They say the trend is less about resignation than it is about hesitation – worries over Covid-related factors that, while burgeoning as vaccines have spread and workers feel more confident about leaving jobs again, likely will subside in the days ahead.

Many still out of the workforce

Moreover, the same Labor Department data set that indicates workers quitting in record numbers also shows hiring progressing at a brisk pace – nearly 6.5 million in September, more than 2 million more than those that quit.

Though the pace of hires has cooled off a bit from the summer, it is moving at a level that easily would have been a record prior to the pandemic. At the same time, the rate of layoffs has remained consistent for most of this year, reflected in weekly jobless claims that have been in a range recently and approaching where they were before the pandemic hit.

It all adds up to a jobs market in which people leaving their positions is driven more by temporary Covid concerns than a general strike, as some have suggested.

“We believe that this resignation dynamic is mostly a symptom of other underlying forces that are affecting labor market participation, rather than a cause,” Barclays deputy chief U.S. economist Jonathan Millar and others wrote in a lengthy analysis.

“Indeed, the high quit rate is a red herring for understanding the sluggish return of workers to the US labor market following the COVID-19 pandemic, in our view,” Millar wrote. “Instead, the true cause is a hesitation of workers to return to the labor force, due to influences tied to the pandemic such as infection risks, infection-related illness, and a lack of affordable childcare.”

That paints quite a different picture, then, of a Great Resignation in which disgruntled workers are simply leaving jobs in droves.

Still, the issue of a declining workforce is important to understand, and it is vexing policymakers at the Federal Reserve and elsewhere.

The labor force participation rate, a measure of those working or seeking work against the total population of working age, is 61.6%, 1.7 percentage points below its pre-pandemic level. That represents a decline of just under three million since February 2020.

Fed officials have said they won’t start raising interest rates until the labor market gets near its pre-pandemic levels, and seeing a normalization of the participation rate would be part of that equation. The size of the labor force is about 1.4 million larger than the beginning of 2021, but still not where policymakers would like.

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