No sign yet of the "great resignation” phenomenon in Australia

Kieran Davies from Coolabah Capital shares research showing that unlike in the US, there's no sign of the "great resignation" in Australia. Davies says this raises some questions around the pricing of interest rate expectations for 2022.
Kieran Davies

Coolabah Capital

Our research shows that there is no sign yet that the “great resignation” phenomenon in the US is repeating itself in Australia, helping explain why Aussie wages growth is much slower than the accelerating labour costs observed in the US. This raises questions about the inconsistencies in the financial market's pricing of interest rate expectations; whereas investors are pricing a US Federal Reserve fund rate of only 75 basis points by the end of 2022, they are expecting a higher RBA cash rate of 90 basis points over the same period. 

The US is experiencing a surge in resignations as many workers either take another job or retire early.

One of the many striking features of the recovery in the US labour market has been the recent surge in the "quit rate", which expresses the number of people who have voluntarily left their job as a share of employment. After falling from a pre-pandemic level of 2.3% to a recession low of 1.6% in April last year, the monthly non-farm quit rate has surged to 3.0% in September, which is the highest level since data became first became available in 2000. 

This “great resignation” has been widely interpreted as a positive sign that workers are confident enough to leave their job to either take another role or retire early. That said, COVID is also having a clear impact on the numbers, with more than half the national increase in resignations from prior to the pandemic driven by a surge in separations in low-paid, front-line jobs in hospitality, retail and health and social care.  

In contrast, there has been no surge in resignations in Australia, at least until early 2021...

In Australia, the story has been different, with no sign yet of a surge in resignations, at least until Q1 2021, which is the latest annual observation. That is, the number of people who voluntarily left their job over the preceding year fell from a pre-COVID level of 9% of total employment in Q1 2019 to less than 7% in Q1 2021. 

This was the lowest share since data first became available in 2015 and reflected far fewer workers leaving their job for both economic and other reasons. The quit rate for economic reasons – i.e., wanting a better job, wanting a change, leaving a job with poor work arrangements/pay/hours, and starting a business – fell from 6% in Q1 2019 to about 4½% in Q1 2021, while the quit rate for other reasons – i.e., family reasons, retirement, and returning to study after holiday work – dropped from about 3% to 2% over the same period.  

...and surveyed expectations do not point to an impending wave of resignations

More timely quarterly survey data on whether employees expect to leave their job over the next twelve months suggest the willingness to resign is back at more normal levels, but without any evidence of a planned “great resignation”. 

Prior to the pandemic, about 7½% of workers expected to leave their job over the next twelve months, with that share falling to almost 6% during the first COVID outbreak last year, which was the lowest level since data first became available in 2001. The share then quickly recovered, reaching 8% in Q3 this year, which is the highest level since 2018. 

Splitting the numbers by reason tells the same story. Employees expecting to leave their job for either a new job or to seek other work fell from approximately 5% of total employment in late 2019 to a low of about 3½% last year, with the share recovering to about 5% in Q3 this year.  The ratio of employees expecting to leave their job for other reasons – i.e., family reasons, retirement and “other” seasons – to total employment has held broadly steady at around 3% so far in the pandemic.

The difference in quit rates between the US and Australia is one factor helping explain Australia’s slower growth in wages.

For the Reserve Bank, the absence to date of a “great resignation” dynamic in the Australian labour market is one factor helping explain Australia’s slow wages growth relative to the sharp acceleration under way in the USA. This is because survey data show that switching jobs normally delivers an average 5% boost in hourly wages. 

The RBA will be hoping that this situation will change as unemployment falls further next year, assuming of course that COVID does not derail the outlook.    

Wages and core consumer prices in Australia have been expanding at a relatively benign pace that is around half the rate observed in the US. The incongruity, therefore, is that by the end of 2022 markets expect a Fed cash rate of only 75 basis points, which is below the 90 basis point expectation for the RBA’s cash rate next year.

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Investment Disclaimer Past performance does not assure future returns. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. This information has been prepared by Coolabah Capital Investments Pty Ltd (ACN 153 327 872). It is general information only and is not intended to provide you with financial advice. You should not rely on any information herein in making any investment decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The Product Disclosure Statement (PDS) for the funds should be considered before deciding whether to acquire or hold units in it. A PDS for these products can be obtained by visiting Neither Coolabah Capital Investments Pty Ltd, Equity Trustees Ltd (ACN 004 031 298) nor their respective shareholders, directors and associated businesses assume any liability to investors in connection with any investment in the funds, or guarantees the performance of any obligations to investors, the performance of the funds or any particular rate of return. The repayment of capital is not guaranteed. Investments in the funds are not deposits or liabilities of any of the above-mentioned parties, nor of any Authorised Deposit-taking Institution. The funds are subject to investment risks, which could include delays in repayment and/or loss of income and capital invested. Past performance is not an indicator of nor assures any future returns or risks. Coolabah Capital Investments (Retail) Pty Limited (CCIR) (ACN 153 555 867) is an authorised representative (#000414337) of Coolabah Capital Institutional Investments Pty Ltd (CCII) (AFSL 482238). Both CCIR and CCII are wholly owned subsidiaries of Coolabah Capital Investments Pty Ltd. Equity Trustees Ltd (AFSL 240975) is the Responsible Entity for these funds. Equity Trustees Ltd is a subsidiary of EQT Holdings Limited (ACN 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). Forward-Looking Disclaimer This presentation contains some forward-looking information. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. Although forward-looking statements contained in this presentation are based upon what Coolabah Capital Investments Pty Ltd believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Coolabah Capital Investments Pty Ltd undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

Kieran Davies
Chief Macro Strategist
Coolabah Capital

Based in Sydney, Kieran Davies joined Coolabah Capital in 2020, an asset manager than runs over $7 billion in fixed-income strategies, and is responsible for macroeconomic research and investment strategy, contributing to the investment decisions...

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