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Help My Career: Quitting jobs has slowed in these sectors — here’s why that could hurt workers’ bargaining power

Friday’s jobs report showed surprising strength in the labor market, but there are signs that all may not be well for all workers.

Quitting in low-wage sectors such as retail, leisure and hospitality is slowing down, said Nick Bunker, an economist at Indeed Hiring Lab. 

That means people working in those sectors probably have less bargaining power than before, he told MarketWatch.

Here’s why: people quitting their jobs is an indicator of job seekers’ confidence that they can go out and find new jobs. Quitting rates can also predict what’s going to happen to wage growth in the months ahead.

“High quit rate means that there are more workers than usual expressing their desires by leaving their old jobs. The vast majority of them are going to new jobs,” Bunker said. 

To be sure, the quit rate is still higher than pre-pandemic rates, and people are still switching jobs for higher pay, Bunker said, but the cooling trend is pretty clear, especially in retail. 

The quit rate in the leisure and hospitality and retail trade sectors peaked near the end of 2021 and early 2022, and started decreasing at the beginning of the year, according to an Indeed analysis based on data from the Bureau of Labor Statistics. 

The job market in the U.S. in July was strong, adding 528,000 new jobs, which came as a surprise amid layoffs in the tech sector and elsewhere. Economists had expected almost 300,000 new jobs. The unemployment rate also fell to 3.5% from 3.6% a month ago, according to Bureau of Labor Statistics data released Friday.

Economists said the labor market is among the strongest in the past 50 years

But there were mixed signals in the data. For example, a slowdown in wage gains for lower-wage industries continued in July, Bunker pointed out. The growth in average hourly earnings for lower-wage production workers had been riding above middle-wage workers and higher-wage workers since the beginning of 2021, but dipped from the beginning of this year. It was 13% in December and decreased to around 6.2% as of June, according to Indeed analysis. 

The number of people who quit jobs in June fell slightly to 4.23 million, according to the Labor Department’s latest data. A year ago, the quits number first reached 4 million, a trend that some dubbed “the Great Resignation,” and others called the “Great Renegotiation.” The pre-pandemic quit level averaged around 3 million every month. 

Workers in retail, restaurants, and hospitality led the trend of quitting their jobs. Most of the quitting that emerged in the spring of 2021 happened in those sectors. The demand for labor in those industries boomed as people were dining out and visiting stores in the wake of vaccinations and the reopening of the economy. 

Quitting can pay off. Around 60% of workers who switched jobs from April 2021 to March 2022 reported that they had seen an increase in their earnings, according to a Pew survey. 

Approximately half of job switchers were making roughly 10% more than they were a year ago after wages were adjusted for inflation, making them among the select number of workers whose wages were outpacing inflation.

The increase in the cost of living reached 9.1% in June compared to last year, and many Americans are struggling to cover daily living expenses as a result. Some have dipped into their savings to manage costs while others have changed their spending habits or turned to credit cards. The Federal Reserve has increased the federal funds rate four times since March in an effort to tame 41-year-high inflation. 

Economists have noted that the impacts of inflation, together with interest rate hikes, could impact consumer spending.

Retailers are already feeling the pinch, with Walmart

issuing a warning on lower-than-expected profits and a few others reporting losses in the past quarter stemming from inflation and rising expenses. 

If the economy takes a downturn, the current high demand for workers in warehousing, retail and restaurants could shield those workers from job losses, Milken Institute chief economist William Lee told MarketWatch recently. But entry-level white-collar workers could see layoffs, he said, as companies reshape their business models. 

The big question at the moment, Bunker told MarketWatch, is how companies will respond to fading consumer demand. Employers could either cut back on their hiring plans or let people go. 

Although layoffs are common during downturns, he said, because the labor market is tight at the moment and employers had a hard time hiring in the past year or so, employers might consider “riding out this downturn in demand” and hold on to the workers that they do have. That’s called “labor hoarding,” he said.

“If that were to happen, that would give you an indication that maybe we’d see less of a hit to lower wage workers that we’ve seen in the past, especially if there are sectors that are understaffed right now,” Bunker said. 

Earlier this week, Walmart announced it was laying off  200 corporate employees to restructure the business. 

Jimmy Carter, a Walmart spokesperson, told MarketWatch in an email that the move is one among many the company is making to update its structure and provide better service to its customers and the broader business community. He said that Walmart is further investing in key growth areas such as e-commerce, supply chain, technology, health and wellness and advertising and sales. 

“It’s also important context that as customers continue to evolve, that we evolve to make sure we’re serving them,” he wrote.  

Walmart’s job cuts provide a glimpse of the pressures facing the retailer at the moment, but they don’t necessarily signal distress for the entire economy, Bunker said, noting that “the vast majority of Walmart employees are the people who work in physical retail stores.” He said it would be a more troubling signal for the whole economy if Walmart was laying off store associates.

“If Walmart were to say, ‘We’re starting to let go store associates,’ that would be a sign that they’re starting to think, ‘OK, demand for coming to our stores and buying things is dropping so much that we need to let people go.’ But that’s not what we saw in the announcement,” Bunker said.

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