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Home Publications Blogs Beat the Press The Quit Rate, the Fed, and Braindead Employers

The Quit Rate, the Fed, and Braindead Employers

Saturday, 29 March 2014 10:35

The raise-interest-rates crew has lately been getting excited over a slight rise in the quit rate, the percentage of workers who voluntarily leave their jobs. The claim is that the labor market is now getting so tight that workers are able to get wage gains, which will be passed along in higher prices, which will soon mean accelerating inflation.

It's a bit hard to see much of a case here. While the quit rate is above the troughs seen in 2009-2010 it is still lower than at any point in the 2001 recession and aftermath. Wages by most measures are pretty much rising at the same pace as they have been over the last three years, and inflation seems to be slowing rather than rising. But hey, if you want to slow the economy and throw people out of work, you can always find something.

Anyhow, there are two sides to any quit decision. On the one hand, there is an unhappy worker. On the other hand there is an employer who has made this worker unhappy. This is worth thinking about.

The business press has been full of stories of employers complaining that they can't find qualified workers. I and others have ridiculed these claims, since the obvious way to get qualified workers is to offer higher wages. This does not seem to be happening on any large scale, suggesting that employers really are not having trouble finding workers.

But perhaps there is more to our ridicule than we imagined. Maybe employers really don't understand that if they offered higher wages they would get more workers applying for jobs. After all, no one gives you a test in basic economics to become a boss. If that is the case, we would expect the failure to raise wages would lead to more unhappy workers and more quits. This would be true even if the labor market is weak.

So maybe the answer to the riddle of a higher than expected quit rate is a change in behavior among employers rather than a change in the labor force. It's at least as good as the other theories out there.


Note: Hyphens added, thanks Fred.

Comments (10)Add Comment
Local supply.
written by jhm, March 29, 2014 2:13
There has been a steady diet of news stories in my local media on this supposed dearth of skilled workers (especially manufacturing), without any discussion of wages. My only thought is that these stories usually talk about the need for training programs in local community colleges and vocational schools. I get that businesses would much rather taxpayers pay for training so that they can have access to lower wage entry level employees, but there is a public interest in employing locals, so isn't there some give and take in supplying these workers (who supposedly will eventually be higher paid workers), instead of raising wages to attract out of the area workers? what about those who would have taken these positions?
written by Fred Brack, March 29, 2014 2:23
Dean, Just a helpful tip from an old writer/editor: Don't spurn the hyphen!

For example, you lead off this post: "The raise interest rates crew ..."

Wouldn't this be better: "The raise-interest-rates crew ..." Doesn't that facilitate speed-reading and fast-comprehension by improving instant clarity?

("Raise-interest-rates advocates ..." is even better, but that's just me, an inveterate editor obsessed with eliminating unnecessary articles.)

Don't let old-fogey grammarians (my cohort!) trapped in Pepys Diary prevent you from writing for the Internet Age. Using hyphens lavishly to assist time-constrained (and/or bifocalled!) readers on computer screens was one rule I adopted when I migrated from magazines/newspapers to the Internet. Despite old-fogey beliefs, punctuation rules were not included on Moses's tablets. Think speed/clarity!
Don't Listen to Fred!
written by Frankly Curious, March 29, 2014 2:38

Don't listen to Fred! Save the little grey cells for economics. We need you more there!
Take This Job and Shove It: How Structural Unemployment Works
written by Last Mover, March 29, 2014 3:04
The claim is that the labor market is now getting so tight that workers are able to get wage gains, which will be passed along in higher prices, which will soon mean accelerating inflation.

Funny how that works. The claim that unemployment is structural is also a claim that the market is tight. By definition it means there is a shortage of skilled workers.

But the sock puppets never claim if the tight structural market was loosened up with higher wages, the result would be inflation ... because they ignore that higher wages are necessary to correct the claimed shortage in the first place.

Even if wages increased to correct a genuine structural shortage, that wouldn't contribute to inflation anyway. It would just pay for more real productive output and could even offset inflation in the opposite direction.

To be consistent the sock puppets would have to explain why "structurally unemployed workers" are not actually in tight markets rather than loose markets, and why those tight markets don't represent high quit rates by structural employees who left for higher wages elsewhere in the aggregate ... the way the same workers now who quit more, are claimed to react to shortages under full employment and create higher wages that cause inflation ... rather than more productivity through more real output that would cure the "shortages".

They can't explain it because the two are fundamentally contradictory. Rising wages and quit rates do not cure the structural unemployment they said existed before because they didn't exist at the time, but at the last minute rising wages and quit rates that do barely appear are said to indicate full employment ... as the structural unemployment suddenly and conveniently disappears.

To top it off, the rising wages are said to cause inflation instead of correcting the structural shortage that just disappeared by paying more for more output.

The sock puppets have all the bases covered. Any way it's sliced no wage increase associated with increased productivity at full employment or below full employment can ever be justified.
Barking At the Moon
written by Larry Signor, March 29, 2014 8:09
The composition of quit rates is very interesting. The change in employers behavior is certainly a main determinant in many quits, via paying below market wages and benefits. The next question is inter-temporal timing. How many quits are coordinated with new job substitutions? All quits can't realistically lead to an unemployed worker and many leave a job vacancy. AHA! Now we are getting somewhere...there seems to be a correlation between rising quits and the falling#job-seekers/available job. Certainly indicates some positive tightening in a very slack market. But a ratio of 2.7 job seekers/available job does not indicate a tight labor market, but this is data everyone knows. The real problem is an historically rich corporate sector that only seeks to suborn the influence of labor in the market. Our government, which enabled this massive growth in corporate wealth, is just as determined to control economic expansion, via lack of job growth. "What's a poor man to do?"


Please discuss the not so obviously stories of interest rates and employment.
written by Number Six, March 30, 2014 8:30
I work for a company that produces "capital goods." And certain production lines are booming--adding a second shift with additional hiring. There appears to be two reason for the expansion: 1)the strong energy sector and 2)low interest rates, that are attractive for capital goods purchasing and financing. This second reason reminded me of the story of Italian pasta maker Barilla.

A few decades ago after huge floods in Italy--destroying their production facilities--Barilla rebuilt and modernized. The resulting increased in productivity allow the firm to increase market share and revenue.

The upshot here is that many American companies are enjoying low interests for making capital expenditures--planning for future growth. Obviously, Senior citizens may not like low interest rates, but others do.
More for less, lean and mean...
written by Noni Mausa, March 30, 2014 8:34
Why do businesses not hire staff when they need them? Because in a tight labour market, they can.

I worked recently for an American chain consisting of many small outlets with bare-bones staff levels. Last year the manager was dismissed, leaving two experienced employees doing the managers job but with no bonuses, and a junior employee filling in on a part time basis.

They have been working without a formal manager for months now. The senior employees are paid their normal hourly wages only, and are hanging on because head office might pick one of them to be the new manager.

Why would the chain hurry to install a manager? So far they have saved roughly $15,000 in wages and bonuses, while the outlet continues to chug along as before.

Can't find qualified staff? I think they protest too much.

written by DM, March 30, 2014 9:37
"since the obvious way to get qualified workers is to offer higher wages."

Maybe this is just my warped high-tech world, but this was a damned funny line.
Oh, but they are
written by Lrellok, March 30, 2014 10:23

It has now apparently come to light that several tech companies have been artificially suppressing wages of their skilled workers by refusing to recruit anyone from each others companies. Now i might not have formal training, but i understand enough economics to know that when prices are lower then they should be, you get a shortage of supply. Which seems to be exactly what the tech companies are complaining about.

This raises several fascinating questions, but i find the most interesting one; "Do business owners really want free-markets to set labor prices efficiently? Or do they really just want to keep interfering then asking the government to intervene when markets try to correct?"
written by kharris, March 31, 2014 10:13
It is, sadly, quite common to see reference to improvement without much context in discussions of economic performance. Often, it is just like what you point out here - a failure to consider what a normal economy would look like. Any improvement is seen as evidence of a return to blah blah whatever.

By the way, Mian and Sufi have a chart on their blog showing that even before the "Great R" core PCE inflation had not averaged near 2% for some time. We know that low inflation tends to be more stable than high inflation, than inflation expectations tend to reflect inflationary performance in recent years, and we know that inflation is far from 2% now. Under those circumstances, the "watch out fer that there inflation" crowd should have to produce a very strong argument for their new favorite bit of evidence. Pointing to a slightly higher quit rate, without making a connection through data between a particular quit rate and a particular pace of wage acceleration or inflation acceleration, involves huge question-begging.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.