If you're confused as to how millions of Americans can up and quit their jobs as we enter another pandemic year and inflation is at an all-time high, you're certainly not alone. While there are a range of factors contributing to the "Great Resignation," some are far less obvious than others. In this segment of Backstage Pass, recorded on Dec. 15, Fool contributors Rachel Warren, Connor Allen, and Danny Vena discuss.
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Rachel Warren: As we've been saying on a lot of shows recently, the stock market, it's been highly volatile lately. This has been driven by a range of factors, including record high inflation, there's been concerns about the Fed accelerating interest rates and its bond buying tapering policy.
We've been dealing with months of mixed job reports now, as well as supply chain concerns, all of these things are contributing to the current volatility we're seeing. But I saw an article on CNN today, that was answering the question that I think many of us have been wondering, particularly as we've been talking about on the ongoing rate of Americans quitting their jobs at record rates.
How are millions of people affording not to work? We know that some of these trends have been, people are quitting to find more flexible better paying jobs. Maybe they're joining the gig economy, younger workers perhaps, they're going to work for themselves, that people of all ages have been starting their own businesses. But there's more.
According to this article from CNN, "one of the more insidious myths this year, was that young people didn't want to work, because they were getting by just fine on government aid. People had too much money, went the narrative. The only trouble is the numbers don't back it up. Instead, one of the factors that was driving this rate of high quits was early retirement. Whether forced by the pandemic or made possible otherwise, that is playing a big role in America's evolving labor market."
The article notes that "people have left the workforce for a myriad of reasons in the past two years, layoffs, health and security, child care needs, any number of personal issues that rose from the disruption caused by the pandemic. But among those who have left, are not able to, or perhaps don't want to return, the vast majority are older Americans who accelerated their retirement."
This is a two-part question and this is the first part of it. What do you guys think of this news and what do you think this means for the job landscape as we head into the New Year? Connor, why don't you take this one first.
Connor Allen: CNN talked about how there was a narrative that it was just government aid. I think government aid played a part, but it's definitely not the whole problem.
I think there's a variety of factors like what they were saying, just tons of different reasons of why we're dealing with all these labor issues right now.
Last night I went to go get some ice cream at 9:30 and they were closed, I was like dang, where did all the labor go? I think a lot of people have been going to stores that were closed and wondering the same thing, including myself having a late-night sugar craving.
But one interesting thing that I heard about, was that labor statistics are calculated based on W-2s, not 1099s, so yes, the unemployment rate, I can't remember exactly what this is. Is it around 5% now I think. Unemployment rate is at 5%, but it could actually be much less than that, because they are not calculating in all the 1099 and the freelancers out there that are taking up those jobs right now.
That's not actually put in to the statistics, so unemployment could actually be a lot lower than this. Also, as far as that pertains to the stock market, I think this could potentially lead to some slower growth next year, having these labor issues, and if it does, that's fine by me, 4.2%. Thank you, Danny. That's what the unemployment rate is right now. Hold on, what was I saying?
If next year we experience some slower growth, I'm not too concerned about it. All it allows me to do is to find companies that I've wanted for a long time or find companies that I like and buy them at prices that I actually like. That's what I'm expecting.
Rachel Warren: Yeah, absolutely. What about you Danny, thoughts?
Danny Vena: No, it's interesting they said that. The stock market just really abhors uncertainty. Whenever there's uncertainty for any variety of reasons including the unemployment picture, what you will see is some volatility in the stock market, which in general is good for long-term investors. We were already in the midst of the silver tsunami which was a term that was coined to describe all of the baby boomers that are retiring. The baby boomers was one of the largest generations ever.
But there were also factors, like the pandemic and economic uncertainty, that accelerated the inevitable. In fact, I saw some of that firsthand because several of the people that work in my wife's office decided when they started asking people to come back to the office and there was still a lot of fear around the pandemic. They opted to retire early. I think we're seeing a lot of that. I suspect that there was also record home prices that played into that, which is something that was mentioned in that CNN article.
There were a lot of people that were near retirement and we had that booming housing price phenomenon that's going on. That allowed people that were near retirement to downsize and get a smaller place and take some money off the table to help fund their retirement. I absolutely agree with what Connor said. There are a lot of things that play into that. This is not something that long-term investors should be concerned with.
Be aware that there's probably going to be increased volatility, it could be for another year or two. That said, it gives you great opportunities to buy quality companies at bargain basement prices.
Rachel Warren: Absolutely. I love what you both said on this. That's the interesting thing about this situation we're in right now. As an investor, I would say you look at these numbers, you don't need to worry about them. Definitely be aware that certain companies might be struggling temporarily, might be trading down, which can be a great opportunity to buy.
But I think it's also something that is important to understand because it is a factor of this ongoing fluctuating job numbers that has been impacting the broader market. To Connor's point, there are so many reasons we are seeing these fluctuating numbers and then these fluctuating movements within the stock market. I think that it can be easy to sometimes get a little caught up in the day-to-day volatility and it can be helpful to understand some of these factors that are driving it as well. Did you have another note you wanted to add, Danny, to this?
Danny Vena: Actually, about the housing market. Another thing, and this is something I wanted to make as a public service announcement, is the fact that interest rates are still very near record lows this year.
If you have not already or if you have not considered refinancing your house, if you have the ability and the means to do so that would be a way to put more money back into your pocket. You should check with your local mortgage lender to see if they would be interested in helping you refinance. A lot of times, particularly in the current environment, they'll do it with low or no closing costs.
Rachel Warren: Very cool. Yeah, the thing that stuck out to me from this report was that we've been talking a lot about how younger workers and workers that are turning to more flexible jobs are driving these changes in the labor market. But I think this is a very interesting piece of the puzzle. This phenomenon of more people retiring at a record pace that we don't always discuss when talking about ongoing labor shortages.
I saw another article on CBS. It was essentially talking about how economists are saying that some of these retirees, we need them back in the workforce. We know that there's a lot of reasons behind this. I think some people decided it's a pandemic. People that might be in a more at-risk age group during a pandemic, they're in a good place savings-wise with their retirement accounts, why not just retire and enjoy life a little bit more.
But according to this article I found on CBS, this really struck me. There was a comment from a labor economist and professor at, I believe, New York Law School, Teresa Ghilarducci. [Editor's note: Teresa Ghilarducci is actually a professor of economics and policy analysis at The New School for Social Research.] She was saying 40% of the older workers that were pushed out of the labor market because they were unemployed, they were laid off, they were fired during the pandemic.
That represented 40% of the workers that were pushed out of the labor market and 40% of them were permanent job losers. Most of them said I'm not a discouraged worker, I'm just long-term unemployed.
That's what I'm going to tell the Labor Department survey, I'm retired. You have instances of people that maybe were forced out of their job during the pandemic and reported as retired during those Labor Department surveys. Another thing that was interesting was "while businesses pre-pandemic typically kept workers with more seniority and laid off newer workers, that didn't hold during COVID".
We talk a lot about the positive aspects that have been driving these numbers, like more people choosing to work for themselves or finding a better paying jobs. But this area seems to be one that needs improving as well, where perhaps you have people that were unfairly pushed out in the labor market at a time when they were perhaps not ready to retire and are finding it increasingly difficult to get back in. I think that that's an area where companies need to really step up for sure.