Three Theories of the “Great Resignation”

The “Great Resignation” refers to a rise in the rate at which people were quitting their jobs starting in late 2021.

It may look like much on a graph. This graph shows the monthly rate at which workers quit jobs voluntarily (thus, not counting retirements, health issues, or being laid off). You can see the blue line peaking at 3% per month, which if you work out the arithmetic, would mean that over a 12-month period, a number of workers equal to 40% of the entire workforce would have quit their job. You can also see a gradually rising “quit rate” from the end of the Great Recession in 2009.

Ryan Michaels lays out three possible explanations in “What Explains the Great Resignation?” (Economic Insights: Federal Reserve Bank of Philadelphia, 2024: Q2, pp. 10-18).

In the graph above, the blue line is a “quit rate” calculated from the Job Openings and Labor Turnover (JOLTS) Survey, which is a survey of 21,000 establishments. The red line is data from the Longitudinal Employer and Household Dynamics (LEHD) data set, which includes nearly all workers and firms, but only comes out quarterly rather than monthly. An advantage of the LEHD is that you can track whether someone switches directly from one employer to another: a disadvantage is that you don’t know in the LEHD data if the worker quit voluntarily to take another job, or was laid-off and just found another job very quickly.

Michaels suggests three reasons why the quit rate may have risen:

According to the fast-growth narrative, the rise in quits was a byproduct of the fast economic recovery in 2021–2022. According to the telework narrative, quits rose because more workers transitioned to remote-work occupations. And according to the wealth narrative, the sharp increase in household savings during the pandemic enabled workers to spend more time away from paid work, and thereby induced quits.

After breaking down the labor market movements by industry and demographic groups, Michaels concludes:

Higher quit rates were observed for all industries and demographic groups, but the rise in quits was particularly sharp for younger, female, nonwhite, and non-college-educated workers. Many of these workers transitioned directly to another employer, but a majority left the workforce altogether. This suggests that changes in both the supply of labor (as illustrated by the wealth narrative) and the demand (as illustrated by the fast-growth narrative) contributed to the rise in quits. … The rise in quits was fueled by both stronger labor demand and weaker labor supply—a combination that should put upward pressure on wages. The acceleration in wage inflation appears to have in turn fed into higher price inflation.