Could the Great Resignation Theory be incorrect? Since last March, both the Civilian Labor Force, and the Labor Participation Rate have remained right around pre-pandemic levels hinting that it could be. So what phenomena is responsible for the, often discussed, labor shortage?
Currently, job openings far outpace the level of unemployment. In fact, if every currently unemployed person found a job, there would still be over five million jobs remaining. One could look at this graph and attribute this gap to a mass exodus from the workforce, but as I mentioned earlier, that seems to be unlikely with the Civilian Workforce roughly at pre-pandemic levels. So what could account for this massive dislocation in the labor market? I believe it’s more likely that sustained low interest rates have prompted increased investment leading to more jobs being created. Job creation numbers, as measured by the BLS, seemed to reach a new equilibrium after the turbulence during the onset of the pandemic. April 2019 had about 288 thousand jobs created compared to the 428 thousand created in April 2022. So the issue doesn’t seem to be a limited labor supply as the Great Resignation Theory suggests, but rather the issue is due to rapid job growth fueled by the Federal Reserve’s policy.
Breaking down employment by sector, we see that Leisure and Hospitality has suffered the worst losses since April 2019. Beyond that, most of the other major sectors have gained employees, again lending merit to the claim that the Fed’s monetary policy has been conducive to rapid job creation. The one sector that seems to defy this hypothesis is Leisure and Hospitality. This sector has continued to see record quit rates since the initial job loss brought on by the pandemic, but since the overall labor force is remaining stable, it seems the workers are shifting into other jobs and not resigning. The stress in the Leisure and Hospitality sector is the reason behind the perceived labor shortage since it’s the sector that consumers interact with most frequently. This doesn’t seem like an outlandish claim as average pay in the Leisure and Hospitality sector remains well below other sectors. The shortage problem in this sector should be remedied as the Fed tightens the economy, and workers are relegated back to their former positions as their new employers are forced to cut recently created positions.