GREAT RESIGNATION

The word, “Great Resignation”, has been going around recently, referencing a recent economic phenomenon where people would, en masse, resign from their place of employment to look for better opportunities in employment place. Some see it as an extraordinary event, some are upset, and others are just happy that people are finally moving or pushing the employment market in the right direction.

The Great Resignation, also known as the Big Quit, is the ongoing trend of employees voluntarily leaving their jobs, from spring 2021 to the present, in response to the COVID-19 pandemic, the American government refusing to provide necessary worker protection, and wage stagnation despite rising costs of living. Some economists described the Great Resignation as a general strike while discussing Striketober, a strike wave that began in October 2021.

One thing that I have not seen in all the Forbes and other Journal articles, however, is how can Economics explain this. Is this as extraordinary as it sounds? The answer is simple, this is covered in the Neo Keynesian School of Economics, under Sticky prices of Labor (The sticky wage theory is an economic concept describing how wages adjust slowly to changes in labor market conditions).

New Keynesian economics is a modern macroeconomic school of thought that evolved from classical Keynesian economics. This revised theory differs from classical Keynesian thinking in terms of how quickly prices and wages adjust. New Keynesian advocates maintain that prices and wages are “sticky,” meaning they adjust more slowly to short-term economic fluctuations. This, in turn, explains such economic factors as involuntary unemployment and the impact of federal monetary policies.

Unlike other markets where prices are dictated by supply and demand, wages tend to remain above equilibrium as employees resist wage cuts.

Let me briefly elaborate. The Keynesian part, in this school of thought — while markets are indeed the best-known way to allocate resources — cannot reach equilibrium, or even get out of crises properly, without government intervention.

Neo Keynesian school focuses on the real and observed economic phenomena to the original thought and proposes the concept of wage rigidity, where companies are not updating the wages to the current market rates and living conditions.

What we have seen now, with the market disruptions and the information being able to spread quickly, employees demanding these sticky prices to get more in line with more recent market demands, in terms of both finances and benefits wisely. This shows that sometimes, markets need a little push to update their equilibrium conditions.

How does knowing this information benefit you on an individual level? Being able to explain this phenomenon, hopefully, will protect you from all the propaganda going around on both sides (looking at your Forbes contributors and Reddit); but even more, allow you to see your career position in line with the greater picture, to hopefully, let you direct your career better. Information like this is our eyes and ears in the world at large.