How the Great Resignation Could Be a Drag on the Workforce, the Economy and Income Equality

You’ve probably seen media reports highlighting what’s being called the Great Resignation. Fast Company refers to this trend as “a mass exodus from the workforce in search of something better: a shorter commute, a sane work-life balance, a sense of greater purpose or passion.”

According to the U.S. Department of Labor, nearly 20 million workers quit their jobs in the five months from April through August. The vast majority of these individuals were in the private sector, and quit rates were highest in the leisure, hospitality and retail trade sectors. Not surprisingly, some research has also shown that resignation rates were high in fields that experienced extreme demands and burnout due to the pandemic, such as health care.

While many employees are moving on to better opportunities or better wages, others are simply dropping out of the workforce entirely or retiring early. In fact, based on some projections, 2 million more workers than expected have retired in the pandemic. Some individuals are reluctant to return to work due to fears of exposure to COVID-19 or difficulty in finding affordable childcare. Studies are also looking at whether enhanced unemployment benefits are keeping individuals from returning to work; results thus far suggest the expansion in jobless benefits has not had a significant effect on overall employment.

Workforce trends are particularly concerning for certain demographic groups:

·???????Women – More women than men have left the workforce. According to the Department of Labor, the women’s labor force participation rate remains stuck around 57%, its lowest level in over 30 years (vs. 70% for men).

·???????Minorities – The labor force participation rate for African American men is four points lower than for White men (66% vs. 70%, respectively). Of note: the participation rate for Hispanic or Latino men is much higher at 80%.

·???????Mid-career Employees – According to a Harvard Business Review article that analyzed 9 million employee records from more than 4,000 companies, resignation rates are particularly high among mid-career employees, those between 30 and 45 years old. Many of these individuals are entering prime earnings years when they should be focused on making contributions to their long-term savings and retirement; it’s important they don’t take a significant step back in saving for their future financial security.

So, what are the implications of these workforce trends? There are potential concerns on multiple levels.

First, as the growing number of “Help Wanted” signs attest, businesses are experiencing challenges hiring and retaining employees. According to the most recent CEO Confidence Survey from The Conference Board and The Business Council, 74% of CEOs report problems attracting qualified workers. This talent deficit can be a drag on business results, supply chains and the nation’s economic growth. Rising wages driven by the war for talent – while positive in the ongoing struggle for fair and equitable pay for workers – can also contribute to inflation.

Next, if a significant number of people remain out of the workforce for an extended length of time, they could stop developing the skills needed to qualify for future jobs. If such a skills deficit ensues, it could have a negative impact not only on the future earnings potential and long-term financial security of those individuals, but also on the nation’s competitiveness, productivity, economic growth and workforce diversity. (And research has shown that diversity is a proven driver of business performance and innovation).

Finally, because women and minorities are being impacted disproportionately, income and wealth inequality could continue to proliferate across these segments of the population.

For all these reasons and more, it’s critical for policymakers, economists and business leaders to get a deeper understanding of today’s unique workforce trends and how different groups are affected.

The Federal Reserve, for example, has complex questions to consider.

At a recent policy-setting meeting, the Fed indicated that tapering of asset purchases “may soon be warranted.” However, with respect to the timing of raising its target for the federal funds interest rate, the Fed indicated that they consider both labor market conditions and inflation. In assessing both factors, the Fed will need to consider how much inflation risk is appropriate to take on to increase workforce participation and support the economic recovery. At the same time, there has been debate about whether the low interest rate environment has inadvertently contributed to wealth inequality by driving increases in the stock market, where ownership is skewed toward wealthier Americans.

I believe it will take a concerted and united effort to implement public policy and workforce programs that bolster the economic recovery, strengthen productivity, and counter income and wealth inequality. For the long-term good of our nation, our economy and our workers, we must approach the necessary discussions and decision-making process in a thoughtful, fact-based and productive manner.