Why investors want more people to quit their jobs

Posted on Posted in Financial Blog

An interesting WSJ article today revealed that 2.2 million American workers voluntarily quit their jobs in May. This number represents approximately 1.6% of the employed population of the US, a percentage (aka the “quits rate”) that has remained constant over the last three months.

We know investors like it when jobs are created and unemployment falls, and we don’t like it when employers are forced to lay employees off as they did during the recession five years ago. But you may be surprised to hear that investors are actually encouraged by a certain percentage of American workers voluntarily leaving their jobs—the graph (below) shows the “quits rate” dating back to January 2001. From mid-2004 through 2007, a relatively prosperous period for the stock market and economy, the quits rate stayed in the 2.0%-2.5% range, and tumbled at an alarming rate with the onset of the recession in early 2008. As we can see from the graph, workers have slowly but surely been quitting their jobs at an increased rate since the market bottom in early 2009.

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Why do we want to see a higher rate of employees quitting their jobs? Well, every situation is different, but from a macro standpoint—people usually leave their jobs voluntarily because they have a new job lined up. The fact that workers are finding and securing better, higher-paying or otherwise superior positions at an increased rate is a positive signal. And if they don’t have a job lined up, pulling the trigger and leaving shows that they are confident they will find a new job soon. This isn’t to say that every time somebody quits their job in favor of unemployment that it is justified—even in the deepest recessions, some people will just quit their jobs to quit, hoping to find something better even if they have no reasonable basis to believe it will happen. But when it happens on a large scale, it shows us that consumer confidence has increased across the board, and that’s what we hope to see in the coming months and years.

There is still plenty of room for improvement in the overall job market—before the recession about 5 million employees were hired per month across the US; in May only 4.4 million employees were hired. However, on the bright side, there were only 3.07 people competing for each job in May, compared to 3.37 a year ago and an astounding 6 applicants per job in July 2009.