Welcome to the Great Hunkering Down

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

How times have changed. Four years ago there were reports of law firms inviting staff to bring their dogs to the office, while some bankers enjoyed “summer Fridays” — characterised by one Wall Street analyst as: “Log into Teams, check email, then live my life.” Now, the news is generally of perks being withdrawn, and even of companies requiring staff to put their mobile phones in lockable pouches to improve security, “remove distractions and build discipline”.

It is always possible to find some sociological, technological or managerial explanation for these changing trends. But the waxing and waning of workplace perks is usually an indicator of one key thing: the shifting balance of power between employers and employees. In more normal times, this looks like a gentle push and pull in line with the economic cycle. Over the past five years it has been more like a whipsaw.

The best metric to follow is the rate at which people quit their jobs voluntarily. I have always been fond of the name given to this dataset by Nick Colas and Jessica Rabe of DataTrek Research: they call it the “Take This Job and Shove It” index. After the pandemic, a shortage of labour gave workers an unusually strong bargaining hand. The “quit rate” — the number of people who left their jobs voluntarily as a proportion of total employment — was about 2.3 per cent in the US pre-pandemic, and shot up to about 3 per cent in 2021. UK data shows a similar pattern, though statistics on quit rates in other countries are hard to come by.

But people’s propensity to quit has plunged since then. In the US, the latest reading is just 1.9 per cent, the lowest (excluding the pandemic) for about a decade. In the UK, the pattern is very similar. The Great Resignation is well and truly over. Welcome to the Great Hunkering Down.

The last time quit rates were this low in both economies, unemployment was higher than it is now. So why are employees so determined to sit tight? For one thing, there is plenty of macroeconomic uncertainty about, from trade wars to real wars. Regular warnings about looming AI-induced job losses can’t help confidence either. On top of that, the US housing market is weak (though causation might run both ways). I also suspect that some of the people who switched to remote work during the pandemic and moved to rural areas might now be a little trapped in those jobs, without many alternatives that meet their needs.

At a company level, low attrition rates are usually seen as a good thing. But for the economy, they’re the opposite. That’s not only because they’re an indicator of low economic confidence. OECD research suggests that “labour reallocation” — people moving from stagnant companies to growing ones — doesn’t just reflect economic dynamism and productivity growth, but actually helps to propel it.

All of which brings me back to AI. There are some tentative indications that new AI tools are beginning to boost productivity growth in the US. But if that is the case, it must primarily be via helping staff to be more productive in their current roles, rather than the messier, but often more transformative, types of productivity growth that come from what economist Joseph Schumpeter called “creative destruction”.

Yet if you had believed much of the commentary over the past few years, you would have expected economies such as the US and the UK already to be in the midst of a vast “labour reallocation” process by now.

For the pessimists, that was going to look like vast job losses and the growth of a “permanent underclass” who were no longer employable. For the optimists, it was more likely to look like a normal burst of rapid technological change: some occupations and industries would shrink while others would grow, new occupations would be created while others would be destroyed, and an awful lot of people would find different jobs in a bewildering, but ultimately productivity-enhancing, bout of disruption.

Indeed, Kristalina Georgieva, managing director of the IMF, said last year that AI was “already like a tsunami hitting the labour market”.

But this job market data doesn’t scream “tsunami” to me. People aren’t getting fired in large numbers. They aren’t getting hired in large numbers. And they aren’t quitting to seize new opportunities in large numbers. The sea is as placid as a lake.

Perhaps it is the calm before the storm. Perhaps people are right to batten down the hatches. Or perhaps we’re all expecting more drama from the AI story than we really should.

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