Maybe Not So Great: Analyzing Historical Data Provides Better Context to Understand the Great Resignation

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The latest figures came out on January 4, 2022 and showed that 4.5 million people voluntarily left their jobs in November – a “record high”, according to the agency responsible for collecting the data. That’s 3% of the nonfarm labor force, headlines of which also proclaimed an all-time high.

But is it? The “dropout rate” interests me because I wrote my doctoral thesis in economics on how people find work. Since then, I’ve been fascinated by how people leave their jobs and find a new one.

Tracking “quit”

Data on people who drop out comes from the Bureau of Labor Statistics. Each month, the bureau runs the Job Openings and Labor Turnover Survey, also known as JOLTS. The bureau surveys about 20,000 businesses and government agencies each month, which it uses to estimate several aspects of the workforce, including how many people have quit, retired, been hired or fired.

Since April 2021, the share of non-farm workers who have left their jobs has been at some of the highest levels recorded by the bureau. In total, nearly 33 million people left their jobs during this period, more than one-fifth of the total workforce in the United States.

Of course, that’s a lot of people. But a closer look at all the historical data we have can help put this into perspective. One problem is calling the current levels a “record”. The problem is that the data only goes back a little over two decades, which means it’s certainly possible that the rate could have been higher several times in the past. We just don’t know.

For example, during the dot.com bubble in the late 1990s and early 2000s, the US economy was strong, which created many new jobs and opportunities for workers. These are typical precursors to more people leaving their current jobs in search of better pay and benefits. Given that the rate was 2.4% in January 2001 – a month after the dropout data began – it is not a stretch to imagine that it could have been higher than the current level at some point in time. 2000 or earlier.

Or another time when quits might have been higher was after World War II, when America’s post-war economy was booming and the economy was changing.

In fact, some data prior to 2000 suggests that there were times when the dropout rate may have been higher. The Bureau of Labor Statistics tracked the quit rate in manufacturing from 1930 to 1979, when it ended the survey because the industry – which at one point accounted for as much as 28% of the economy – has become less important.

Manufacturing workers, who make things like steel, cars and textiles, were leaving their jobs at an average monthly rate of 6.1% in 1945, compared to 2.3% recorded for the sector in November 2021.

Given that about a third of the American workforce had manufacturing jobs in the late 1940s, this suggests that the overall quit rate was likely higher at the time.

Putting resignations into perspective

Many stories have also focused on the absolute number of workers who left their jobs, such as 4.5 million who quit in November – on a seasonally adjusted basis. If the departures for December 2021 are similar to those for November, I would expect around 47 million people to have voluntarily left their jobs in the whole of 2021. This would mean that around 33% of the entire non-agricultural labor force left their jobs last year.

Again, that sounds like a lot, but a large portion of the workforce does this every year. In 2019, for example, around 28% of the US workforce quit. So, is the dropout rate higher than normal? For sure. But off the charts enough to earn the moniker “awesome”? I do not think so.

Not all sectors are experiencing a wave of resignations

Nor are workers quitting en masse in all sectors of the economy. While quits are higher than usual in most industries, a few sectors are responsible for most of the turnover, with some below their recent highs.

The highest dropout rate is found in accommodation and food services. About 6.9% of people working in hotels, motels, restaurants and bars gave notice in November. Although this is the highest rate since 2000, voluntary turnover in this sector is generally high – given the nature of the work – and has exceeded 5% on several occasions over the past two decades.

The second-highest quit rate in November, at 4.4%, was retail, which includes store and boutique workers. Together, these two relatively low-paying industries accounted for a third of all people who left that month. In contrast, dropout rates in construction, information, finance and insurance, and real estate are relatively low and have been higher for the past 21 years.

We can also see from the data that young people make up the largest share of job changers. Data from ADP, one of the largest payroll processors, breaks down revenue by age. But unlike JOLTS data, ADP doesn’t know why someone is no longer working at a company — whether they quit, were fired, or something else — so it can only track total revenue.

The most recent data from ADP shows that the high turnover is concentrated among 16 to 24 year olds, with a turnover rate almost three times higher than the national average.

The high turnover of young workers is not surprising, in my view, as COVID-19 restrictions have negated many non-wage benefits like after-work socializing and company parties. For young workers new to the labor market, these types of activities are important for developing belonging and loyalty to the company. Without them, there are fewer ties that unite these workers to a company.

Reduce the dropout rate

However, just because the quit rate isn’t at an all-time high doesn’t mean there isn’t a problem with excessive turnover in the labor market. But this problem seems to predate the pandemic.

High annual quit rates mean that many workers are unhappy with the pay, benefits or working conditions of their jobs. And it can be a huge waste of time and money for businesses and workers. Hiring and training workers is expensive. And finding a new job and changing jobs is physically and emotionally difficult for workers.

Research shows that employers can minimize turnover through many different methods, such as giving workers a sense of purpose, letting them work in self-directed teams, and providing better benefits.

People considering quitting should ideally find another job before quitting. You are much more likely to successfully transition from one job to another than trying to transition from unemployment to work.

The next time you hear about the “Great Resignation,” understand that it’s not as important as it sounds, because so many American workers have been quitting for years.

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