The Idea

Common sense advises that quits and job openings are somehow connected. The most compelling explanation would mention the following factors:

• for employees to quit there must exist some other jobs at which these employees can work;
• companies need to be actively hiring in order to create a pool of jobs large enough for employees to choose from and find a suitable new workplace;
• job switch takes some time, hence job openings should be created in advance so that employees can negotiate the new contract terms and other details before they decide to quit;
• the new jobs need to be offering financial or career improvements for someone to be eager to leave the comfort of their current working place.

The Model

The chart below based on BLS monthly data for the years 2001-2021 shows that most of the factors mentioned indeed seem to be relevant to the actual quits process.

Job openings show a close connection to the workers’ decision to leave their current workplace. Note that the jobs created are shown on the chart with a one month lag. It is clear that the more job openings were generated by the economy in the previous month the more quits follow in the next month. Naturally, data seem to confirm that the process goes like this: employees see that new opportunities exist and that there’s is a sufficient pool of new openings to choose the fitting new career, so they take some time to make the necessary arrangements and finally do switch their jobs.

Checks

Several robustness checks were performed. Among them were using other lags and more lags for the job openings variable, using non-employment-weighted absolute values for both parameters, adding other possible variables (the same BLS report data parameters, e.g. layoffs and discharges, were used as an alternative reason for leaving the job). However, the basic results stay stable and continue to imply a strong connection between job openings and quits. At the same time, the increased pay or other income influence on quits (the 4th bullet in the list above) has not been checked in order to keep the model simple. Nevertheless, all the results here should be taken with great caution and used only as the first step for more serious and profound analysis.

Conclusion

In conclusion, a handful of observations regarding the Great Resignation can be made even with such a simplistic model:

• people tend to wait for the real opportunities to appear, they usually do not quit to nowhere;
• the current increase in resignation fits nicely to the historical data patterns;
• it is highly likely that as the employment pick up subsides, the quits wave will also go down.

The post Are Quits and Job Openings Connected? A Simple Model. appeared first on strategy observer.

fig 1. The Depths of the corona crisis Left chart: World GDP and trade dynamics (actual till 2020, IMF forecast for 2021-22). Source: IMF data Center chart: Apple mobility trends for G7 countries. Source: Apple Inc. Right chart: VIX index. Source: CBOE

Then, in September-December 2020, came the stabilization at the bottom. Situation calmed down albeit at the very low levels. Indeed, the depth of the fall varied with activity in many services sectors ground to a halt, while in sharp contrast to many previous crises manufacturing and investments did better, as well as the financial sector. However, in general the panic leveled out and CEOs and corporate strategists started thinking about the life after the crisis.

fig 2: Employment by sector. Source: OECD data

Since the start of 2021 the hope and the rebound have come. Multiple vaccines approval allowed to start the immunization process. The rates of vaccination are different by country but the world in general seems to be on the right track, so achieving herd immunity looks like a question of time. Managers’ optimism has also picked up in the recent months and now everybody is hastily developing the best strategies of corporate development for the years to come.

fig 3: PMI by country. Source: Bloomberg

So what should you look at when developing you company’s strategy in the not-so-brave new world?

To use a simple rule-of-thumb approach there are 3 key factors to consider:

• the prospects for dealing with the disease itself;
• the persistence of the social distancing measures and popularity of distance work after the pandemic is gone;
• the pace with which the major policymakers will be curbing fiscal and monetary stimuli.

So here these factors are grouped and ranged by the 3 major scenarios that any meaningful strategy usually considers. The strategic horizon is 3 years.

So you decide on the probability of each scenario and then you create your strategic growth plan placing resources accordingly. In any case, you company’s growth strategy should also take into account the industry your company is working in: services sectors are to stay more influenced by the future rebound dynamics than the rest parts of the economy.

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