What is the “Great Resignation,” and what does it mean for employers?
We gathered our Labor and Employment experts together and asked them: What is the “Great Resignation,” and what does it mean for employers?
Excerpts of their wide-ranging conversation were lightly edited for clarity and reported here.
So glad you asked! The “Great Resignation” refers to the recent phenomena in which workers have been quitting their jobs at record rates. According to the Bureau of Labor Statistics (BLS), almost 48 million workers quit their jobs in 2021, the highest annual total in U.S. history. In the private sector, the number of quits in 2021 accounted for 37% of the workforce. As a result, there were 14% more job openings than the number of unemployed workers looking for work during the typical week in 2021. This is anomalous because, over the past two decades, job openings have averaged about 45% less than the number of unemployed.
The increase in employee turnover can make it harder for employers to attract new employees. Additionally, data show that more senior workers are choosing to retire slightly earlier, resulting in job openings across all levels. Because there are more job openings than unemployed workers, prospective employees have more options when looking for a new job. Given the options prospective employees have, companies will need to offer more to court them, including providing things like remote working options and higher pay.
With the potential for so many new hires and the current market pressure on starting pay, one thing employers should be on the lookout for is the possibility of pay compression – when employees who have been in a job for a long time make similar wages (or even lower wages) than new hires in the same position. Keep in mind the average wage in the U.S. has increased by 6.6% over the past twelve months. Pay compression can lead to employee disengagement and further worsen turnover. Moreover, pay compression can result in discrimination claims, especially in cases where the more experienced workers who earn less than new hires are part of a protected group.
These are great points. Relating in part to each of them, the main concern I have relates to how increased levels of attrition change the calculus for companies in their pay equity efforts. For example, we are beginning to see clients with newly hired employees with a different demographic profile compared to those who resigned (or who remained). If, for example, those who resigned are disproportionately higher-paid protected group members, an apparent pay equity concern may emerge where there was not one previously. This phenomenon would be exacerbated if those who resign are replaced disproportionately by relatively highly paid non-protected group members. We see this or an adjacent issue any time a company is reorganizing its workforce and creating new groupings of employees, but the Great Resignation will elevate this issue for companies in their pay equity efforts.
It’s not all bad news for employers, though! The large amount of employee turnover presents a unique opportunity for firms to make material changes on the diversity front. When employee turnover is small and/or primarily at the entry-level positions, it can take a long time to change the race/ethnicity composition of your workforce in a meaningful way. Because so many employees are changing jobs across a range of experience levels right now, employers are now hiring more employees in a wider range of jobs than in the typical year. In many industries and occupations, today’s labor market is becoming more diverse, so this relatively large employee turnover may give employers an opportunity to change the composition of their workforce much faster than they could otherwise.