Why are employees quitting less and less often?

How times have changed. Four years ago, there were reports of law firms inviting employees to bring their dogs into the office, while some bankers enjoyed a “relaxed Friday” — which one Wall Street analyst described as “I log into Teams, check my email, and then I go about my life.” Now, the stories are mostly about cutting benefits and even companies asking employees to leave their cell phones in locked drawers to improve security, “eliminate distractions, and build discipline.”

It’s always possible to find some sociological, technological, or managerial explanation for these changing trends. But the rise and fall of workplace perks usually point to one key thing: a changing power relationship between employers and employees. In more normal times, this looks like a gentle tug-of-war with the economic cycle. Over the past five years, it’s been more like a sudden jolt from one side to the other.

The best indicator to track is the rate of people voluntarily leaving their jobs. I’ve always liked the name Nick Colas and Jessica Rabe of DataTrek Research gave this dataset: they call it the “Here’s Your Job, Get Out of Here” index. After the pandemic, the labor shortage has given workers an unusually strong bargaining position. The “job-leaving rate” — the number of people who voluntarily left their jobs as a share of total employment — in the US was around 2,3% before the pandemic, and jumped to around 3% in 2021. Data for Britain shows a similar pattern, although statistics on voluntary job-leaving rates in other countries are hard to come by.

But the willingness of people to quit has since plummeted. In the US, the latest figure is just 1,9%, the lowest level, excluding the pandemic, in about a decade. In Britain, the pattern is very similar. The “Great Resignation” is indeed over. Welcome to the “Great Burial.”

The last time voluntary job loss rates were this low in both economies, unemployment was higher than it is now. So why are workers so determined to stay where they are? For one thing, there is a lot of macroeconomic uncertainty, from trade wars to outright wars. Even the regular warnings about impending job losses due to artificial intelligence don’t inspire much confidence. In addition, the US housing market is weak, although the causality could go both ways. I also suspect that some people who switched to remote work and moved to rural areas during the pandemic may now be a bit trapped in those jobs, without many alternatives that suit their needs.

At the company level, low employee turnover rates are usually seen as a good thing. But for the economy, they are the opposite. And not least because they are an indicator of weak economic confidence. OECD research suggests that “redeployment of labour” – the movement of people from stagnant companies to growing ones – not only reflects economic dynamism and productivity growth, but actually helps to drive them.

All of which brings me back to artificial intelligence. There are some preliminary indications that new AI tools are starting to boost productivity growth in the United States. But if that’s true, then it must happen primarily by helping workers be more productive in their current jobs, not through the more chaotic but often transformative forms of productivity growth that come from what economist Joseph Schumpeter called “creative destruction.”

Yet if you had believed much of the commentary of recent years, you would have expected that economies like the US and the UK would already be in the midst of a massive process of “redistribution of labour” by now.

To pessimists, it would have looked like massive job losses and the growth of a “permanent underclass” of people who were no longer employable. To optimists, it would have looked more like the usual flurry of rapid technological change: some occupations and industries would shrink while others would grow, new occupations would emerge while others would disappear, and vast numbers of people would find different jobs in a bewildering but ultimately productivity-boosting wave of disruption.

Indeed, Kristalina Georgieva, the managing director of the IMF, said last year that artificial intelligence is “already like a tsunami hitting the labor market.”

But that labor market data doesn't tell me a "tsunami." People aren't getting laid off in droves. They're not getting hired in droves. And they're not quitting in droves to take advantage of new opportunities. The sea is as calm as a lake.

Maybe it's the calm before the storm. Maybe people are right to close all the windows before the storm. Or maybe we're all expecting more drama from the story of artificial intelligence than we should.

The text is taken from the Financial Times.

Translation: NB