Did the pandemic cause the Great Resignation?
By all accounts, the coronavirus pandemic motivated employees to contemplate their careers, reflect on the hours away from family, and envision an entirely different work-life balance.
A Great Resignation soon followed. Millions quit their positions to pursue greater job satisfaction and flexibility.
Business leaders quickly endorsed this view. After all, what other account could possibly explain the unprecedented number of resignations across the nation? In addition, it fits well with a popular narrative about what companies learned from the pandemic, and their ongoing efforts to restructure corporate cultures to accommodate employees’ new demands.
However, the explanation flatly ignores labor market realities. Presently, there are lots and lots of businesses hiring. It is a seller’s market. Employees quit taking advantage of their newly acquired leverage. In short, record-breaking job openings cause record-breaking job resignations.
Workers resign when there are better alternatives
There is no evidence the pandemic changed long-standing labor market incentives. When jobs are plentiful, people quit their positions and seek more favorable opportunities. When job prospects dim, people remain with their employers. The graph below demonstrates this powerful association.
The rate of job quits, and the rate of job openings vary together – strongly so. The correlation between job quits and job openings is a robust .80. In April 2021, the rate of job openings reached a record high of 6.0 and so did the rate of job quits at 2.7.
Yet, this foundational economic logic does not attract the news media’s attention. Rather, the media relies on colorful anecdotes about worker dissatisfaction and personal despair – induced by pandemic isolation – to rationalize the historical surge in resignations. This makes for a good copy. But, candidly, do employees quit in a bleak job market? The data says no.
Predicting job quits
By using the past 20 years of pre-pandemic monthly job openings and job quits data, iLevel constructed a regression model to forecast job quits. The model produces a line of expectation – the blue line on the graph below. Think of the line as an expected rate of job quits for any given rate of job openings. For example, by eyeing the graph - following the blue diagonal, you can see that a job openings rate of 2.0 generates an expected quit rate of around 1.6. Or a job opening rate of 5.0 translates into a quit rate of approximately 2.4.
Now consider the yellow circles that represent months during the pandemic. Notice how most yellow circles are clustered tightly along the expected path. The iLevel model in fact does an excellent job of predicting actual quit rates.[i] For example, the February, March, and April 2021 data points fall on the blue line – distinctively accurate forecasts. This is true before the pandemic – and during the pandemic as well. If the pandemic had an unusual impact on resignations, the statistical relationship between job openings and job quits during the past 6 months or so should have weakened. It did not. Rather, the association strengthened, which indicates job openings are the primary driver of job quits.
Conclusions
In normal times, when there are more jobs available, more people quit their jobs. In uncommon circumstances – like the pandemic – the same principle holds. The iLevel model demonstrates this logic. Using only pre-pandemic data, the model forecasted record job quits in April 2021.
No one disputes the unprecedented situation today – millions are resigning. There appears to be a great reshuffling. But the cause of this change should not be attributed to personal epiphanies prompted by pandemic seclusion and remote work. Indeed, regardless of social or political conditions, employees often contemplate their work environments and yearn for greater independence, flexibility, and increased job satisfaction. Only when extraordinary job opportunities exist, as they presently do, will a large proportion of workers resign and pursue those aspirations.
Finally, consider this question. If the rate of job openings had stayed at approximately 4.5 this year – as it was in September 2020, would the rate of a job quit surged to a record 2.7?
No. Quit rates would most likely have remained below 2.5.
Instead, the economy rebounded, and job openings expanded to astonishing levels. This in turn generated a record level of resignations. An improving and revitalized job market made possible the so-called Great Resignation.
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[i] The early pandemic months that included extraordinary uncertainty and falling employment are the exceptions – at the pandemic onset, voluntary resignations were understandably low.
