Thursday, January 13, 2022

 The Great Resignation


A by-product of the pandemic has been a spike in the "quits rate," the rate at which people quit their jobs, to an all-time high of 3%+. Now a measly 3% doesn't sound like much from a percentage standpoint, but when you factor in natural retirement, loss of workers, and a huge number of job openings we have a problem Washington.

Keep in mind 3% is the AVERAGE, meaning even with the explosive growth in certain sectors, quitting has become the norm in many fields, like tech and healthcare, which had rates significantly higher than the average. One of the best, if not THE best, piece I've seen studying this phenomenon was published recently in the Harvard Business Review. Yes Harvard is smart. Yes the article was superb, but it never really delved into WHY people are quitting. Worry not fellow financial farmer, ILAF is here with our "curriculum vitae" to help you decipher this trend.

Why does someone work? Generally the answer to that question is "to make money." If we strip out the other common reason "for the benefits," ie healthcare, then almost exclusively people work for money, especially if the state provides either free or significantly subsidized healthcare. I would say the REASON people work for money is to support themselves, their family, AND they REALLY have to work if there are debts like education, housing, and living expenses to pay. To totally generalize from the top two categories of those fueling the Great Resignation, tech and healthcare, I believe that there is a HUGE dichotomy in terms of WHY.

The curve to enter healthcare is relatively steep; there are years of education, training, and commitment to become a nurse, doctor, EMT, provider, etc., etc. Their quits rate would almost certainly have to come from burnout and exhaustion rather than choice, especially if there was significant debt overhang. This quits rate is more aptly termed a capitulation rate. This "cap rate" is a function of Maslow's Hierarchy of Needs, where literally survival trumps employment. Sadly, these professionals are also "being quitted" by mandates. It is a double-edged sword. The flip side of this quits rate in tech, however, is very different.

The tech industry has a much different dynamic occurring. Although the barriers to entry are arguably on par with the medical world in terms of education and skill, the REGULATORY environment is quite different. Generally speaking, in the tech world you are judged, hired, fired, retained, promoted, etc. on your ability to code, create, market, etc. There is an entire regulatory ecosystem MISSING from the tech industry that has allowed it to flourish. Which brings me to the quits rate for tech.

The tech quits rate is on par with the healthcare industry, but for vasty different reasons. The WHY, especially for the core quitters in the 30-45 age band is pretty simple. They don't necessarily HAVE to work. Through a confluence of events many of the tech quitters do not have high debts, nor onerous regulatory requirements to keep current to keep employed. Most own or owned some portion of a company that has gone UP in value. So debt free or low debt with a stash of cash and manageable healthcare costs make leaving work out of CHOICE for tech easy.

What does this quits rate dichotomy mean? I don't see healthcare DEMAND easing, so either more less qualified employees will be hired or pay will have to be raised for existing providers to remain or both. I bet on BOTH. The demand is simply too great to shoulder on the existing model, especially with various mandates being imposed on healthcare in general. So as a cost of our GDP healthcare will take an increasingly high bite, regulations will increase, and the misery index of working in healthcare will also increase. When the ratio of administrators to doctors begins to fall we will be on the right track.

On the tech front, billions of dollars are flowing into PE Funds (private equity) and the majority of that is flowing into tech companies. The great winnowing is always happening, where the best and most successful companies gain the lion's share of a disruptive market, whether it be food delivery, social networking, or EV engineering. Many will fail. Billions will be spent and lost. But from that wreckage a handful of truly exception winners will emerge....and in tech, quitting while you're ahead isn't the same as quitting.