The ‘Great Resignation’ and Inflation Could Push Each Other Higher, Says Economist
The ‘Great Resignation’ and Inflation Could Push Each Other Higher, Says Economist

By Rahul Vaidyanath

News Analysis

The term “great resignation,” which describes the record numbers of people quitting their jobs amid the pandemic recovery, has gained some traction recently.

The quit rate—the number of people leaving their jobs voluntarily as a proportion of the total employed—hit 3 percent in the United States in September, an all-time high, according to the World Economic Forum (WEF). This could exacerbate the inflation problem, said Oxford Economics lead economist Adam Slater in a Dec. 1 note to clients.

Slater suggests high inflation could affect worker psyche and create something like a vicious cycle leading to even higher inflation. The annual inflation rate in Canada hit 4.7 percent in October, close to the highest in nearly 20 years. It was even higher in the United States, at 6.2 percent, that same month.

“The sharp recent rise in inflation has made workers more sensitive to inflation trends (after a long period of insensitivity) and prompted them to look for higher-paying jobs. This could feed back into still higher inflation,” he wrote.

People quitting is most notable in the United States but also in the United Kingdom, Slater said.

“The jump likely reflects tight labour markets and possibly a reaction to rising inflation. With a potential feedback effect from higher wages to prices, these developments represent an area of considerable uncertainty and an upside risk to our baseline inflation forecasts,” noted Slater.

There are both optimistic and pessimistic views of an elevated quit rate. Optimistically, a healthy jobs market typically has a fair bit of job churn. Pessimistically, Slater points out, “surging quit rates could be a possible sign of a shift to a higher inflation regime. As such, quit rates look like a key indicator for investors and policy-makers to keep an eye on.”

Different Story in Canada

In Canada, a similar metric to the quit rate is the proportion of people switching jobs. It has surged from almost nobody switching jobs in early to mid-2020, after the pandemic hit, back to a more typical level now.

“We’re not seeing this great mass resignation for any sorts of reasons,” Leah Nord, senior director of workforce strategies and inclusive growth at the Canadian Chamber of Commerce, told The Epoch Times.

Nord said that there are many differences between the Canadian and U.S. labour markets and that they are hard to unpack for their effect on the quit rate.

As a hint that Canadians may be more cautious, Nord pointed to Statistics Canada’s November jobs report, which noted that the number of self-employed workers continued to fall further behind pre-COVID levels over the five-month period from June to October.

The trend might be due to people looking for greater income security and stability, she said, as there remains a great deal of uncertainty in the labour market.

“So people might be staying put. They might be looking. But before they take that leap, they want to be secure … in the sense that we don’t know how this [pandemic] is going to continue. Just when we think we’re out in the clear, there are still ripple effects,” Nord said.

As for the record quit rate in the United States, she commented that more workers there might simply be burned out as compared to workers in Canada, and that U.S. government support programs are still running while for example the Canada Recovery Benefit ended in October.

“South of the border, as I understand it, many are resigning due to health concerns and child-care/elder-care challenges that we haven’t experienced the same way in Canada.”

Wages Rising

Quitting a job to start another higher-paying job appears to be bearing fruit in Canada.

Across all industries from November 2019 to November 2021, average pay rose faster for those in their jobs for just three months or less compared to employees who have been in their position for a longer period of time, according to Statistics Canada. 

At the beginning of September, Canadian employers had over 1 million job vacancies. Wages grew 5.2 percent over the past two years when controlling for changes in the composition of employment by occupation and tenure.

“Job vacancies remain elevated and wage growth has also picked up,” the Bank of Canada noted in its Dec. 8 interest rate announcement. The central bank is closely monitoring wages “to ensure that the forces pushing up prices do not become embedded in ongoing inflation.”

The Bank of Canada’s business outlook survey for the third quarter of 2021, released Oct. 18, reported that firms were saying they were seeing higher retirement and quit rates among staff compared with pre-pandemic levels.

The BoC said this suggests that “a change in workers’ preferences may be affecting the availability of labour. The increased quit rate is consistent with many Canadians reporting a willingness to leave their job voluntarily.”

“All signs point due north from here for wages,” said BMO chief economist Doug Porter in a Dec. 3 note to clients, adding that intense labour shortages have been slower to develop in Canada than in the United States.

Slater pointed out that the U.S. quit rate and wage growth have tended to move in tandem. While the U.S. quit rate reached a record 3 percent in September, the U.S. hourly wage growth is now up to 5 percent year-over-year.

Tight labour markets clearly must be a factor in the rising resignations, Slater said.

“Workers have to have other jobs to go to,” he said.

The pandemic afforded many white-collar workers greater flexibility—like working from home, which was rare pre-pandemic. Some form of remote, virtual, or hybrid working looks to be the norm going forward. Many have also saved a lot of money during the pandemic thanks to generous government support programs. 

The WEF noted that service industries like retail, hospitality, and food service are continuing to see the highest number of quits in any sector and that resignation rates are highest among mid-career employees, especially in tech and health care.

Employees appear to have the upper hand and a lot of options compared to employers.

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