It seems like nearly every retail store has a “help wanted” sign on the door these days. US GDP growth and corporate earnings have rebounded since the pandemic, but availability of labor seems to be an issue. According to the US Bureau of Labor Statistics, the quit rate among US employees hit an all-time high of 2.9% in August. Job openings of 10.4 million exceeded those listed as unemployed by about 2 million people.
One possible cause could be the pandemic stimulus programs during both the Trump and Biden administrations that put extra money in people’s pockets. These stimulus programs increased unemployment benefits, with many families receiving multiple checks from the federal government over the past 18 months. The stimulus, coupled with fewer opportunities to spend, especially on services, during the height of the pandemic have resulted in all-time highs in wealth and cash accumulation. As a result, many households have a larger financial cushion than they have had in the past. The recent percentage increases in savings have been greater at the bottom of the economic ladder than the top.
Employers are trying to attract workers with pay increases. August saw annualized wage growth of 4.9%, the highest since the early 1980s. It remains to be seen how many new employees the higher wages will attract.
It is also hard to tell if government benefits are really to blame for this “Great Resignation.” Evidence shows that states that canceled employment benefits early did not see a decrease in the employment rate compared with those that didn’t, and the end of federal benefits in September has not yet made much of a difference to the employment situation.
The big question now is: what happens next. There are a few possible scenarios:
One scenario is that the US has entered a permanent state of tight labor markets. The combination of more workers choosing not to work plus the aging of the “boomer” generation adds up to a real shortage. In response, companies would need to increase salaries and improve employee benefits and working conditions to be able to attract new employees. In this case, incomes would grow more rapidly as they did from the post WWII period through the 1970s.
A second scenario is that in the short run, i.e., the next few years, those who are being choosy about jobs will make their way back into the workforce. And when they go back, they will find that power has shifted to workers. They will be able to demand better wages and benefits because the current administration has put in place government policies that put workers on more even footing with employers.
A third scenario is that employees find that they need to go back to work because they realize that their cash cushion wasn’t quite as large as they thought it was. And when they go back to work, they find a job market where employers hold the power advantage because no new labor policies were enacted. The reality is actually a continuation of a decline of labor unions and an increase in corporate power concentration.
From our point of view, we believe that even though the chart below (source: JP Morgan). shows that the median cash savings of the bottom quarter of households (ranked by earnings) has risen dramatically over the past two years, the actual dollar amount is only about $1,000. Which means that more than likely people will need to go back to work. So, this power that workers currently have may be fleeting. If true, this would likely mean that the current spike in wage inflation may not be as long lasting as many think. We will keep you informed as this issue unfolds over the coming quarters.