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Why inflation could drive the next quitting wave

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The nationwide quitting spree continues: 4.5 million people, or 3% of the labor force, quit their job in March, according to the latest Job Openings and Labor Turnover Survey, matching a series high from last year.

Workers are feeling confident in a booming market where there are nearly two job openings for every person who wants one. As of March, the U.S. economy posted 11.5 million open jobs — nearly double the 6 million workers who were unemployed and actively looking for a job that month.

This makes it the 11th consecutive month where job openings have exceeded the number of unemployed people, says Andrew Flowers, labor economist at Appcast and research director at Recruitonomics.

As the U.S. enters its second year of record turnover, Flowers tells CNBC Make It the Great Resignation could be spreading to new sectors where even middle- and high-wage workers are seeking big pay raises to ease the sting of inflation.

Inflation could make the Great Resignation worse

So far, much of the Great Resignation been powered by lower-wage service workers across sectors like leisure and hospitality, accommodations, food services and retail. These workers also saw some of the highest wage growth of the last year as employers raised pay and bonus offerings to fill the talent shortage.

In some cases, those big raises may have been enough to beat creeping inflation, Flowers says. For example, some leisure and hospitality workers are making nearly 15% more today than a year ago, according to The Wall Street Journal, compared with the 8.5% jump in the consumer price index as of March.

Now it appears the Great Resignation is spreading to other middle- and high-wage sectors, Flowers says. Quitting picked up steam in professional business services, which includes people who work in marketing and sales, legal administration and management.

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Inflation could play a role, Flowers adds, if these office workers didn't see big wage growth in recent months through raises or promotions. With inflation pressures continuing to eat away at paychecks, workers may be jumping ship to secure a big enough raise to soften the blow of creeping living costs.

On Wednesday, the Federal Reserve raised its benchmark interest rate by half a percentage point in an effort to curb inflation, but Flowers expects the job market to remain tight for some time.

"The Great Resignation has not been about giving up on work," Flowers says. "It's about getting better opportunities."

This sector could see a 'quitting epidemic'

The quits rate among state and local education workers, namely public school teachers, is on the rise from 0.8% last year, to 1% in November, and 1.3% as of March.

It's a small share but a worrying increase that could become an "epidemic," Flowers says. "These are typically unionized workers who enter the field and want to stay there," he says. The increasing turnover could be an indication of burnout as teachers continue to weather changing Covid policies with in-person, hybrid and remote learning all in flux depending on the state of the virus.

More than two years into the pandemic, teachers and educators continue to be stuck in the middle of administrators, public health officials, politicians and parents about how to conduct a classroom during an ongoing viral outbreak.

People are working, but labor supply still isn't enough

Despite the record level of quits and openings, Flowers says the labor supply is recovering. Roughly 6.7 million people were hired into new jobs in March.

Flowers says it's important to look at the prime-age labor force participation rate, or the share of people 25 to 54 years old either working or actively looking for work, which currently sits at 82.5% — nearly a full rebound since it was 83% in February 2020.

Flowers says the market disproves the notion that people just don't want to work. Rather, as they've become more comfortable with Covid risks, and at the same time seeing job openings abound, "the open opportunities in the tight labor market is pulling people in from the sidelines. Nominal wage growth is strong, and that's enticing."

But strong wage growth won't be enough to fill the market. Flowers says addressing the talent crunch will require bigger policy changes on issues like immigration, and in the long run a closer look at worker demographics and birth rates.

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