Why people are quitting their jobs and starting businesses
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Out of all the economic indicators out there — labor force participation, international trade, manufacturing — two are particularly indicative of national confidence in the economy’s future: the quit rate and the number of new business startups.
And right now, both suggest that America’s economic confidence is high.
“Workers coming out of this pandemic recession are confident enough in the economy’s prospects that they’re willing to take a risk and leave their job behind,” Marketplace’s senior economics contributor Chris Farrell told host David Brancaccio in an interview.
The following is an edited transcript of their conversation.
David Brancaccio: Quit rate — people voluntarily saying, “I’m leaving this job for greener pastures, Mr. Boss, sayonara.”
Chris Farrell: That’s right. So it’s at a series high — so many people are leaving their jobs that the movement now has its own label: the Great Resignation. So workers coming out of this pandemic recession are confident enough in the economy’s prospects that they’re willing to take a risk and leave their job behind. The social isolation that was endured by so many people during the pandemic, and the trauma that followed the murder George Floyd by a former Minneapolis police officer, it pushed many people to rethink and reimagine what they’re doing at work. They may be looking for something that’s a better fit with their values and goals, and they’re willing to take a risk to find that job and career.
Brancaccio: But you have to be financially secure enough to take the risk of switching careers and leaving a job — unless you have an especially heinous boss, and you just have to get out. But often, it’s people who have the wherewithal to be able to make the change.
Farrell: Economists estimate that we’ve accumulated an excess of $2 trillion in savings during the pandemic, at least for those who still had jobs. And that’s because there were limited outlets to spend your money. Much of the economic conversation about this excess savings rate has dwelled on how it’s going to fuel consumer pent-up demand. But more important, the savings may be helping to pay for that job search or starting a new business.
Brancaccio: Yeah, starting a new business — that’s the other part of it. You might not go to a new boss, you might be your own boss.
Farrell: Entrepreneurship is flourishing. Economist John Haltiwanger at the University of Maryland in a recent paper noted that the pace of new business applications since mid-2020 is the highest on record. The series only goes back to 2004, but still, this large increase in applications is for entrepreneurs that plan on hiring employees and others who just want to be solopreneurs. In sharp contrast, entrepreneurship fell during the Great Recession. And the Kauffman Foundation, a nonprofit organization that follows entrepreneurship, its national series on entrepreneurship also shows a sharp increase in startup activity last year. So, like the quit rate, you don’t take the risk of starting a new business unless you believe there’s an opportunity to make a go of it.
Brancaccio: Now, I don’t want to encourage instability here. But I guess if you’re inclined, now is the time, right?
Farrell: Well, what are you waiting for? If you’ve been contemplating a change, the story is straightforward. Companies are fighting for talent. And that’s the definition of a good market for anyone who’s looking to voluntarily change their job or join the ranks of the nation’s entrepreneurs.
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