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The U.S. ‘Great Resignation’ – Government Shares Blame for the Phenomenon

This summer the number of Americans voluntarily quitting their jobs hit a record high, while more than 10 million vacancies were reported, according to the Labor Department's monthly Job Openings and Labor Turnover Survey, “JOLTS report”. This has left many businesses, especially in the service industry, desperate to find workers and has caused serious disruptions on an operational, logistical, and production level in some of the most important sectors that the rest of the economy heavily relies on, like energy and transportation.


As Reuters reported, “Quits increased by about 242,000 in August, lifting the total to a record 4.3 million. There were 157,000 people who quit in the accommodation and food services industry, while 26,000 left in the wholesale trade business. State and local government education saw 25,000 departures.” Labor shortages have already been cited by many companies as a key reason behind missed earnings forecasts, while a recent survey by the National Federation of Independent Business (NFIB) showed that 51% of small business owners had job openings they could not fill in September, a record high reading for the third straight month.


To make matter worse for many employers, many of those who haven’t quit are currently striking: More than 100,000 US workers have organized strikes and walkouts in October, in a massive show of force dubbed “Striketober” that quickly went viral.


Overall, there is a strong sense that the tables have definitely turned. Workers feel empowered to demand better pay and work conditions and the idea of simply quitting and looking for more attractive opportunities isn’t as scary as it used to be, given the record job openings in the market.


COVID Fears and Welfare Boost Behind Lack of Urgency Main response for ‘not urgent’ job search among non-urgent unemployed


Source: Indeed Hiring Lab Job Seeker Survey, July 2021


On the other side of the equation, large corporations are competing with each other by offering higher wages and beefed-up compensation packages, a trend reflected in recently released US Labor Department figures showing wages and benefits rising at their fastest pace since 2001. Companies from IBM to Amazon and from McDonalds to Walmart, are struggling to hire and to retain enough staff to handle a surge in consumer demand, while these pressures are already starting to affect their bottom line.


However, the brunt of the labor squeeze is being felt by the countless small businesses, restaurants, and bars that have been keeping their Help Wanted signs up for months to no avail. Most of them have already suffered serious financial blows due to the lockdowns and the various restrictions and cannot afford to offer higher wages to attract the workers they need to operate.


Economists, industry insiders, and market analysts have presented many different theories to explain this extraordinary dislocation in the dynamics of the labor market. Many are pointing to the covid pandemic and the fear of virus itself, while others blame long-standing grievances of workers in low-paying jobs, such the minimum wage fight. While these factors could have conceivably contributed to some employees’ decision to leave their jobs, there is a much more straightforward explanation for this tectonic shift: the simple fact that no rational person would take a job they don’t particularly enjoy if they can afford not to.


Until September 5th, the federal government was sending out an extra $300 per week in unemployment benefits, on top of regular state unemployment benefits, while it was also providing additional support for self-employed workers and independent contractors that did not qualify for unemployment checks before the covid crisis. As is the case with any subsidy and any government spending program that interferes with normal market forces, you get more of what you’re paying for: in this case, it’s unemployment.


And even though this program expired in early September, there is already a push to extend it. Treasury Secretary Janet Yellen and Labor Secretary Marty Walsh have urged states to continue issuing additional unemployment aid, while New York Rep. Alexandria Ocasio-Cortez, together with more than a dozen other members of Congress, introduced a bill to restart and extend the pandemic benefits.


Even if the efforts to extend the program fail, there’s still another practical reason that is keeping thousands of workers out of a job. The unpredictable school closures and re-openings means that many parents, and especially women, have to stay home to take care of their children. This is particularly true for low-income households, where the cost of childcare is often unaffordable.


As we’ve seen countless times in the past, the government’s grand designs and efforts to “help” tend to backfire and not only make the existing problems worse, but also create new ones. The current labor shortage crisis is yet another manifestation of this phenomenon. While you can argue how much of the ‘Great Resignation’ can be pinned on the government, they can sure take their share of the blame.


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