What Is Quits Rate?
The quits rate is a key metric in labor economics and macroeconomics that measures the number of employees who voluntarily leave their jobs as a percentage of total employment during a specific period. It is often seen as a significant economic indicator reflecting worker confidence in the labor market and the availability of alternative job openings. A higher quits rate generally suggests that workers feel confident enough in their prospects to leave their current positions, potentially for better pay, working conditions, or career advancement.
History and Origin
The collection of comprehensive data on labor turnover, including the quits rate, gained prominence with the establishment of the Job Openings and Labor Turnover Survey (JOLTS) program by the U.S. Bureau of Labor Statistics (BLS). Development of the JOLTS program began in 1998 to provide a more thorough assessment of labor demand in the U.S. economy. The first public release of JOLTS data occurred in 2002, with a monthly series dating back to December 2000. The program officially converted from an experimental series to an official BLS series in 2004, and has since expanded its scope to include more detailed industry and state-level estimates.5
Key Takeaways
- The quits rate measures the percentage of workers who voluntarily leave their jobs within a given month.
- It serves as an indicator of worker consumer confidence and perceived opportunities in the job market.
- A rising quits rate often correlates with a strong economy and potentially increasing wage inflation.
- The data is primarily collected and reported by the U.S. Bureau of Labor Statistics through its Job Openings and Labor Turnover Survey (JOLTS).
- Analysis of the quits rate can offer insights into the overall health and fluidity of the national labor force.
Formula and Calculation
The quits rate is calculated by dividing the total number of quits during a period by the total number of employees, then multiplying by 100 to express it as a percentage. The data typically refers to nonfarm employment.
The formula for the quits rate is:
- Number of Quits: The count of employees who left their jobs voluntarily during the specified month.
- Total Employment: The total number of people employed during the specified month.
This calculation provides a clear percentage reflecting the degree of voluntary turnover within the employment landscape. Official data for the quits rate is regularly published by the Federal Reserve Bank of St. Louis's FRED database.4
Interpreting the Quits Rate
Interpreting the quits rate involves understanding what worker mobility signifies about the broader business cycles and economic climate. A higher quits rate typically indicates a robust economy where workers feel confident in their ability to secure new or better employment elsewhere. This often means there are ample job openings and potentially higher wages being offered by competing employers, encouraging individuals to seek out more advantageous positions. Conversely, a low quits rate can suggest worker insecurity or a lack of desirable opportunities, often seen during periods of economic contraction or recession. When workers are less willing to leave their jobs, it can signal diminished confidence in the labor market's strength.3
Hypothetical Example
Consider a hypothetical economy, "Prosperityville," with a total employment base of 10 million people. In the month of March, the Department of Labor reports that 250,000 workers voluntarily left their jobs.
To calculate Prosperityville's quits rate for March:
A 2.5% quits rate indicates that 2.5% of the total employed individuals in Prosperityville voluntarily resigned from their positions during March. If this rate is historically high for Prosperityville, it suggests a healthy economy where workers are confident in their ability to find new opportunities, perhaps driven by competition among employers for human capital.
Practical Applications
The quits rate is a vital tool for various stakeholders in the financial world and beyond. For economists and policymakers, it serves as a sensitive measure of labor market tightness and worker economic growth. A consistently high quits rate can signal inflationary pressures, as employers may need to increase wages to retain talent or attract new hires, impacting corporate profit margins and potentially influencing monetary policy decisions. Conversely, a falling quits rate might indicate a weakening economy and a less competitive job market.2
Businesses utilize the quits rate to gauge industry trends and adjust their human resources strategies, including compensation and retention programs. Investors monitor the quits rate as an indicator of broader economic health, which can influence sector-specific performance and overall market sentiment. For instance, sectors with historically high turnover, like hospitality or retail, might experience significant productivity shifts based on changes in the quits rate. The "Great Resignation" period, which saw a significant rise in the quits rate, highlighted its importance in understanding shifts in labor dynamics and worker preferences.
Limitations and Criticisms
While the quits rate offers valuable insights into worker confidence and labor market dynamics, it also has limitations. One significant critique is that the data primarily identifies voluntary separations but does not differentiate between workers quitting to take another job and those quitting to leave the labor force entirely (e.g., for retirement, education, or childcare). This distinction is crucial for a complete understanding of labor market slack and worker bargaining power. A high quits rate driven by workers moving to better jobs suggests a tighter labor market, whereas one driven by workers exiting the workforce might imply different underlying issues.
Furthermore, some analyses suggest that attributing high quits rates solely to a "hot" economy can be an oversimplification. Factors such as a desire for better working conditions, increased flexibility (like remote work options), or addressing long-standing wage stagnation can also contribute to a surge in voluntary resignations, particularly for marginalized workers. During periods like the "Great Resignation," increased mobility reflected a necessary reshuffling of jobs rather than simply an economy running too hot.1 The quits rate alone may not fully capture the nuanced motivations behind worker decisions, requiring a broader examination of labor market data, including the unemployment rate and wage growth.
Quits Rate vs. Layoff Rate
The quits rate and the layoff rate are both measures of job separations, but they reflect fundamentally different dynamics in the labor market. The quits rate quantifies voluntary separations, representing employees who choose to leave their jobs. A high quits rate is typically a positive sign, indicating worker confidence and ample opportunities.
In contrast, the layoff rate measures involuntary separations, referring to employees who are dismissed from their jobs by the employer, often due to economic downturns, restructuring, or poor performance. A rising layoff rate is generally a negative indicator, signaling economic weakness, corporate distress, or a tightening job market. While a high quits rate suggests a strong demand for labor, a high layoff rate points to a weakening demand. Both metrics are crucial for a comprehensive understanding of labor market flows and overall economic health.
FAQs
What does a high quits rate indicate?
A high quits rate generally indicates a strong economy and a healthy labor market. It suggests that workers are confident in their ability to find new or better jobs, potentially with higher pay or improved working conditions.
How does the quits rate affect the economy?
The quits rate can affect the economy in several ways. A rising quits rate often leads to increased competition for talent among employers, which can drive up wage inflation. It also reflects increased labor market fluidity and worker bargaining power. Policymakers, including central banks, monitor this rate as it can influence decisions regarding interest rates.
Where can I find the official quits rate data?
The official quits rate data for the United States is released monthly by the Bureau of Labor Statistics (BLS) as part of its Job Openings and Labor Turnover Survey (JOLTS) report. This data is also available through the Federal Reserve Economic Data (FRED) database.
Is the quits rate the same as employee turnover?
The quits rate is a component of overall employee turnover. Turnover includes all separations—voluntary (quits) and involuntary (layoffs, discharges, retirements, deaths). The quits rate specifically focuses on the voluntary aspect of separations.