One more reason “transitory” and “temporary” have become a silly joke. Even the Fed is backing off promoting it.
By Wolf Richter for WOLF STREET.
The number of people who quit jobs voluntarily – to work for another company that offered higher wages and benefits and a signing bonus; to change careers entirely; to stay home and take care of the kids; to spend more time with their money; or whatever – spiked by another 242,000 people to a record of 4.27 million in August, up 19% from August 2019.
This is what the Bureau of Labor Statistics reported today in its JOLTS report, based on a survey of 21,000 nonfarm business establishments and government entities.
The spike comes amid a very tight job market, with labor shortages cutting into sales and production, and contributing to transportation bottlenecks, amid record job openings that have been spiking for months, and amid aggressive efforts by companies to hire people away from other companies, which creates this spike of quits.
This enormous number of quits is the hallmark of a tight and competitive labor market that encourages workers to switch jobs to seek the greener grass on the other side of the fence.
The total quits rate – the number of quits during the month as a percent of total employment in the same month – jumped to a new record of 2.9%. But the quits rate at federal, state, and local governments was only 0.8%.
The private-sector quits rate spiked to a record 3.3%, with the highest quits rate in leisure and hospitality (6.4%) – which includes accommodation and food services (6.8%) – retail (4.7%) and professional and business services (3.4%):
Accommodation and food services is a huge industry, with relatively low wages, often crappy working conditions, including split shifts, night-and-weekend shifts, and during the pandemic, higher risks of infection than other jobs.
In total, 892,000 workers in accommodation and food services quit in August, 6.8% of all workers in that sector. Quits are always high in this sector. In August 2019 during the very tight labor market at the time, 5.1% quit, which had been the highest since before the Financial Crisis.
At higher-end restaurants and bars, waitstaff and bartenders can make good money from tips, and some chefs can make good money, but that is a minority in the sector. Most restaurants in the US are chain restaurants, fast-food joints, delis, and cafés, and for those workers, the income is mostly based on their low wages.
The quits rate is a measure of confidence among workers. It indicates that workers feel empowered to chase after higher wages and better and safer working conditions, better schedules, and the like, perhaps in a different industry.
It’s a sign of very strong demand for labor and aggressive hiring practices by companies to find labor, and a sign that they’re hiring workers away from other companies. When those workers quit to change jobs, they count as “quits.”
The Labor Department also reported that there were 10.4 million job openings in August, the second highest ever, after the upwardly revised record of July. This was up by 46% from August 2019:
The high number of job openings push employers to offer higher wages, better benefits, signing bonuses, and similar enticements to bring qualified people on board. This has the effect of attracting people who’re already working, and they quit their jobs to take a new job.
Workers are now seeing that they have pricing power. When they leave a job to get better wages and working conditions at another company, they create a headache at their old employer who now, in competition with other employers, has to find a new employee by having to offer higher wages to find qualified people.
This is a sign that inflationary pressures from higher wages are building up in the economy and are spreading through the economy. Higher wages and pricing power by labor are among the factors that give inflation more momentum and staying power. And it’s one of the reasons the terms “transitory” and “temporary” to describe this inflation have become a silly joke, and even the Fed is backing off promoting that silly joke.
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