Worker burnout poses growing threat to US economy, warns UNC professor

Editor’s note: Paige Ouimet is Professor of Finance, UNC Kenan-Flagler Business School.

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CHAPEL HILL – The latest report from the Department of Labor showed continued robust job growth. Employers added 431,000 jobs in March. The news of sustained job gains speaks to the strength of the U.S. economy.  Moreover, the labor force participation rate inched up slightly to 62.4% in March, from 62.3% in February, indicating more Americans are reentering the workforce. We still have a long way to go to resolve the imbalance between job openings and unemployed people, however, and this means that current issues of worker burnout will also linger.

Why should we be concerned about worker burnout?

On Tuesday, the Bureau of Labor Statistics released its most recent Job Openings and Labor Turnover Summary.  Currently, there are 11.3 million job openings in the U.S., representing 7% of the total workforce. Each vacancy suggests that a firm is getting by with fewer workers than it wants, with existing workers being stretched to fill as much of this need as possible. Moreover, these historically high numbers of job openings are not new. The number of vacancies in the U.S. has been over 10 million since last June.

Workers are overextended and have been for a while.

Image via Kenan Institute

More than two years into a pandemic where too few medical professionals are managing increased patient loads, we have all heard how health care providers are burned out. Teachers are also burned out, their numbers reduced by increased retirements and pandemic-related departures as they try to help students who fell behind.

But so are truckers. Yes, the protest that descended on Washington, D.C., was about vaccine mandates but also about the challenge of meeting high demand in the face of insufficient workers and supply chain disruptions that add to workers’ burdens. And airline employees who have had to enforce mask mandates while also covering additional shifts for workers who took buyouts after the steep decline in air travel in 2020. And really just about everyone else. With one in 14 jobs now unfilled, workers across all industries are being asked to take on additional roles and responsibilities.

While it is challenging to measure worker burnout directly, surveys that attempt to do just that show troubling trends.  The job search platform Indeed recently found that 52% of survey respondents reported feeling burned out and 67% of respondents said these feelings had worsened during the pandemic. Given the many challenges of the past two years, I expect we would have documented an increase in worker burnout even in the absence of worker shortages, but labor shortages are making it worse. Burnout is pervasive across the economy and negative trends are observed in all age groups.

Worker Burnout Implications for Turnover and Wages

Workers stay at their jobs when they feel their wages provide sufficient compensation for the difficulty of doing their given job. As the difficulty of the job increases, such as when employees take on more work, workers will either demand higher wages or quit. This is costly for firms as it affects not just what the firm pays its workers today but also what it will pay its workers in the future, even if the firm is fortunate enough to fill all outstanding vacancies. Wages are downwards rigid, a technical way to say that it is very hard to cut worker pay. This is also costly for workers as these vacancies and extra work burdens extend across the economy. Workers leaving a job to look for greener pastures are going to be disappointed to find similar conditions elsewhere.

High quit rates and job vacancies are self-reinforcing. Quit rates remain at a historic high. As more workers quit, firms have more job vacancies to fill. As more jobs go unfilled, more existing workers are asked to take on too heavy a burden at work, leading to burnout and elevated quit rates. Individual firms may be able to break the cycle by aggressively recruiting and supporting their existing workforce.  But, unfortunately, for the U.S. as a whole, the cycle will likely continue as long as demand remains high and elevated numbers of Americans are sitting out of the labor force.

Image via Kenan Institute

Any Good News?

But there are hopeful signs. One is that firms are more concerned about their workers’ needs than before. Increased allowances for work from home is one great example. This additional flexibility allows workers to better balance their work demands with other responsibilities, such as parenting, as well as reduce time spent commuting. Firms are having these conversations, and I expect we will see additional efforts to help alleviate worker burnout.

In addition, worker churn can be good. Workers are leaving their current employment to find new jobs that are more attractive. In the short run, these job transitions will cost firms as they lose the organizational capital held by the departing workers. It would be hoped, however, that these new jobs will be better fits for the departing workers, potentially leading to long-run productivity gains. And in all these transitions, firms are gaining new workers, with new ideas and different experiences. This cross-pollination, in certain conditions, can lead to new innovation as firms are more willing to depart from the status quo.¹

Much has been made about the decline of business dynamism that we witnessed before the COVID pandemic. We saw a decline in new firms starting in the 1980s as well as a decline in the job reallocation rate. The COVID pandemic has reversed these trends, at least for now. New business applications were up 62% in the first quarter of 2021, compared with a year earlier.² Likewise labor reallocation rose sharply in the pandemic.³ Likewise labor reallocation rose sharply in the pandemic. Business dynamism, these processes of creative destruction as well as resource reallocation, are often seen as a key driver of long-run economic growth. It is too early to tell whether we will see the same positive spillovers of this COVID-induced dynamism, but it is an important trend to follow.

(C) Kenan Institute