E The U.S Private Sector Quit Rate Has Soared, But It Hasn’t Ignited Wage Inflation

The latest data that tracks job turnover shows that the voluntary quit rate has been rising steadily as the job market continues to improve.

Economists tend to think that a rising quit rate is a sign that the U.S. recovery is finally picking up momentum because, as the theory goes, workers are getting confident enough to take on the risk of changing jobs or leaving the work force altogether.

The voluntary quit rate is another useful indicator which shadows job turnover in the American labor market. That is, the quit rate is a useful measure of how much confidence workers feel and how many opportunities they have to switch to a more attractive job. When times are good and workers are in high demand, employees quit more frequently than when unemployment is high and workers lack confidence.

In other words, an increase in the quit rate, ceteris paribus, suggests a tightening job market, and one would think higher wage settlements.

But as Krishen Rangasamy of the National Bank points out in his July 11^th Hot Charts, the relationship between the quit rate and wage settlements has seemed to break down over the past several years.

As he points out, what has happened is that most of the voluntary quits have been in the low wage, low skills sector of the American economy. 

As the second chart illustrates, most of the quilts have been concentrated in industries that do not require particularly high levels of skills.

That is industries such food services, hospitality and retailing can easily replace their requirements for low skilled labor and continue to get away with paying relatively low wages.