The Great Resignation: Causes and consequences

A lot has been written on the Great Depression of the 1930s and the Great Recession of 2008-09. A new phenomenon, the so-called ‘Great Resignation’, has now come to the fore as a byproduct of the Covid pandemic. Though it is particularly noticeable in the US and EU, some other economies are also experiencing it to some extent.

Basically, it refers to the existence of a large number of vacancies in certain occupations in which many workers have quit jobs. This is happening despite a fall in the overall unemployment rate to record levels in the US and Europe, due to which one would expect to see that most job vacancies have been filled. But that is not the case. In other words, an overall tight labour market co-exists with unfilled vacancies in some occupations and with some workers dropping out of the workforce. How does one explain this phenomenon?

Several possible reasons are being offered. One, the more generous and longer-lasting income support during the Covid outbreak may have encouraged some workers to drop out of the workforce and stop looking for jobs. Two, some older workers who are more vulnerable to Covid infection may have opted out of work during the pandemic and may be finding it difficult to get back to a job. Three, the closure of schools and childcare centres have forced some parents (especially mothers) to stay home to look after their kids. Four, there is a mismatch between the available jobs and the people looking for employment.

Regarding the relative significance of these alternative hypotheses, some recent IMF studies, using granular data from the US and UK, find older workers not returning to work to be the most significant. Mothers dropping out of the workforce to take care of kids is particularly important in the US but not in the UK. This is largely due to the fact that nurseries were not closed in the UK even during the worst phases of Covid.

The phasing out of the more generous federal unemployment benefits in the US has produced a rather limited effect on people getting back to work since it was well-known from the beginning that this would only be a temporary benefit. The mismatch between vacancies and job-seekers is significant in certain occupations. For example, in occupations where people can work from home, the number of available vacancies relative to job-seekers is much less than in other occupations.

The case of truck drivers is particularly fascinating. The truck driver’s job has always been a tough one that entails long hours, indefinite waiting at the ports or warehouses, inadequate resting facilities while they have to meet the exacting demands of modern supply chains which, again, have come under increasing strain during the Covid pandemic. While shipping and logistics companies have hiked their rates, this has not percolated sufficiently as higher wages for truck drivers, relative to wage hikes in other occupations.

In the UK, the problem has been accentuated by Brexit and its associated immigration rules. Temporary short-term visas to truckers have failed to attract ‘foreign’ workers. The risk of falling sick and the early lockdowns that made it difficult for truck drivers to find a place to rest or eat have induced many of them to think about retirement from the onerous job and find alternative employment opportunities.

Once they found some options, even if those were less remunerative, they stuck to the new jobs and did not want to return to trucking. So, even when there is no shortage of available trained heavy-vehicle drivers, they are not willing to work as truck drivers.

In addition to truck drivers, several other types of service sector workers -- like those in hospitality, travel, restaurants, brick and mortar retail -- who suffered most due to Covid-induced lockdowns, and were also most likely to get infected, have decided to find alternative jobs.

According to some analysts, in earlier recessions, the brunt of job loss has been in the goods-producing sectors while those losing jobs typically found jobs in less-paying service segments. By contrast, the Covid-induced recession has caused most job losses in some service occupations. This tendency is likely to persist because there is no clear sign of the Covid situation coming to an end anytime soon with the emergence of new variants and hence chances of lockdowns and consequent job and income losses in future in some service occupations are quite real.

At the same time, the demand for home delivery workers (who do not require any special skills) has increased everywhere, leading to additional job creation for such workers.

The average real wage in countries like the US has been going up during the Covid years, despite the gradual rise in prices due to supply-side disruptions. This is primarily because many low-wage workers have lost jobs or dropped out of the labour market while the relatively high-wage jobs have survived. In other words, this is a reflection of income distribution within the working class becoming worse than before.

As possible solutions, the focus should be on training programmes to reduce the mismatch between vacancies and job-seekers and keeping open nurseries and pre-schools with enhanced safety precautions. Also, better working conditions (as a result of increased bargaining power) in occupations where we are witnessing a shortage of workers (like truck drivers) may eventually improve the attractiveness of such jobs and attract more workers. From both efficiency and equity points of view, this may well be a longer-term positive impact of the mismatch between vacancies and workers.

Faced with the stark reality of untimely deaths among relatives and friends during the Covid pandemic, many people are being induced to strike a better balance between work and life while choosing jobs.

On the impact of the Covid-induced recession and lockdowns on India’s job situation, there is no counterpart of the Great Resignation as experienced in the developed world. However, the shrinkage of production in the more labour-intensive informal sector and its replacement by formal sector production has caused a net negative impact on industrial employment.

(The writer is a former Professor of Economics, IIM, Calcutta, and Cornell University, USA)