The global reinsurance sector has generated weak underwriting results in the past four years (2017-2020), and 2021 is shaping up to be another below-par year, says S&P Global Ratings (S&P). The industry continues to suffer from higher-frequency and -severity natural catastrophe losses, fuelled by rapid urbanisation and climate change. In addition, this year is likely to be the fifth in a row in which the top 21 global reinsurers rated by S&P exhaust their annual natural catastrophe budgets. The COVID-19 pandemic has further worsened industry losses, especially among these top reinsurers. Overall, this cohort of reinsurers generated more than 70% of the global net reinsurance premiums written in 2020. Capital Despite the elevated losses, the industry's capital adequacy has been robust and remains redundant at the 'AA' confidence level, aided by capital raises and financial markets' recovery, says S&P. However, the industry still faces secular challenges and competitive market dynamics, remaining fragmented as it battles the commoditisation of its business. Once a competitive advantage, capital now is viewed as a relatively cheap commodity because of the influx to the sector from nontraditional sources, sustained by dovish monetary policies. Still, reinsurers have struggled to earn their cost of capital (COC), and 2022 could follow the same trend. As a result, S&P says it maintains its negative outlook on the global reinsurance sector. “This outlook reflects our expectations of credit trends over the next 12 months, including the distribution of rating outlooks, existing sector-wide risks, and emerging risks. As of 25 October 2021, 29% of ratings on the top 21 global reinsurers were assigned negative outlooks, 62% were assigned stable outlooks, and 9% were assigned positive outlooks,” said the global credit rating agency. Countermeasures Many reinsurers have adopted a hybrid model, writing both reinsurance and specialty insurance to hedge against the challenges of the reinsurance sector. Indeed, an increasing number of the top 21 global reinsurers are expanding their insurance more than their reinsurance business, taking advantage of better pricing on the primary commercial side while aiming to reduce volatility. S&P believes reinsurance pricing momentum will firmly support premium rate increases during 2022 renewals, given the sector's recent underperformance, although the pace of rate increases may slow, in part due to ample capacity. While capital is not in short supply, reinsurers overall have shown discipline in capacity deployment so far, leveraging their alternative capital vehicles to manage their peak natural catastrophe zone exposures. Reinsurers also continue to push for higher premium rates wherever they can take them in property/casualty (P&C) lines, with terms and conditions remaining in sharp focus, especially for the exclusion of pandemic and silent cyber coverage. However, reinsurers are only price-takers in this insurance cycle, since this time the primary market is leading pricing dynamics. While the recovery of economic and social activity has generated optimism, reinsurers remain cautious about reserve adequacy in view of casualty loss trends for business written during the recent soft cycle, as well as given inflationary pressures, potential COVID-19 loss developments, climate change, and the risks of investing in uncertain times. Navigating uncharted waters Reinsurers are navigating uncharted waters with uncertainty galore on both sides of the balance sheet. While reinsurers are price-takers in this insurance cycle, the winners will be those that combine underwriting discipline with innovative risk solutions while enhancing their value proposition to cedents and insureds. S&P said, “Our negative outlook could improve if we come to believe the sector may earn its COC, but we don't expect this will happen before 2022, at the earliest.” The top 21 global reinsurers referred to are Alleghany, Arch, Ascot, Aspen, AXIS, China Re, Everest Re, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, Lloyd’s, Markel, Munich Re, PartnerRe, Qatar Insurance, RenaissanceRe, SCOR, Sirius, and Swiss Re. Source: asiainsurancereview.com

Fitch Ratings has said that it expects double-digit percentage premium rate rises for property catastrophe cover in 2022 due to excess losses in 2021 and the prospect of higher natural catastrophe claims frequency and severity in future. This would make 2022 the fifth successive year of price rises. The price increases should help to bolster the sector’s underwriting profitability as they gradually feed into reinsurers’ underwriting margins. Fitch has previously also cited rising prices as a key reason for its view that the sector outlook was improving for 2022. Prospects of a strong economic recovery and lower pandemic-related losses were also key. In a report last month, Fitch noted that several reinsurers had said at September’s Monte Carlo Rendez-Vous and October's Baden-Baden Reinsurance Meeting that they expected further price rises in January renewals. This is largely due to increasing natural catastrophe claims linked to climate change. 2021 Fitch expects 2021 to become one of the five most costly years this century for global reinsurers. Severe floods in central Europe in July and Hurricane Ida in the US in late August and early September will, together, have caused insured losses of more than $40bn. Globally, there were about $40bn insured losses in 1H2021. The global total for 2021 will also reflect several smaller catastrophe events in 2H2021, including a series of wildfires, and will exceed the amount that reinsurers had budgeted for. Reinsurers have shown discipline in prioritising pricing for increased risk rather than seeking to undercut competitors to gain market share. The growth of catastrophe bonds to pass risk directly to investors could also become an important factor to mitigate the sector’s exposure to climate change risk in the coming years. Source: asiainsurancereview.com

The insurance industry across ASEAN has adapted well to the changes forced by the COVID-19 crisis, which disrupted economies and financial markets, said Monetary Authority of Singapore assistant managing director Marcus Lim, at the ASEAN Insurance Summit on Wednesday morning. “When we last met in 2018, the focus of the summit was on the Fourth Industrial Revolution and how digitalization and new technologies could impact the insurance sector,” he said, during his keynote address at the summit, organized by the ASEAN Insurance Council and the Singapore College of Insurance. “Nobody could have foreseen the speed at which we had to embrace digitalization since then.” Beyond the disruption to financial markets, the pandemic also forced insurers to transform the way they worked and how they interacted with customers. Despite the turbulence of last year, the insurance market across Asia remained resilient, with Asia-ex-Japan registering a 2.9% growth in total gross written premiums in 2020. “While this was slower than the robust 6.8% growth in 2019, it was still significantly stronger than the global experience, which saw a decline of 2.1%. Looking ahead, the Swiss Re Institute has forecasted a global premium growth of 3.3% in 2021, largely driven by China and emerging Asian economies,” Mr Lim said. Creating resilience The COVID-19 crisis has highlighted the importance of resilience, reflected in this summit’s theme, as the world continues to wrestle with what the new normal looks like. Mr Lim noted that unity with policyholders and regulators would serve the insurance industry well and allow them to create a more resilient future amidst such uncertainty. He highlighted the various relief measures that were introduced in several jurisdictions to help customers maintain their insurance coverage in a time of financial crisis. Malaysia, Thailand and Singapore had insurers extending the grace period for policyholders to pay their premiums, while insurers in Brunei and Singapore automatically provided their customers with free COVID-19 coverage. “Asian insurance regulators also played their part by adjusting regulatory requirements to enable insurers to better manage the disruptions,” he said. “Indonesia’s OJK, Bank Negara Malaysia and MAS were among the regulators that extended the deadlines for regulatory submissions. The Philippines Insurance Commission introduced temporary relaxation of capital requirements. The trust and goodwill built up between insurers and their customers during this period will serve both sides well.” Strength in numbers The pooling of risk is an integral part of the insurance business and sharing expertise and information only makes the industry stronger. “While ASEAN's insurance market continues to see strong growth, there are areas where work remains to be done for us to be more resilient as a region,” he said. In this regard catastrophe and disaster risk remained in focus for ASEAN, even amidst the pandemic, with Mr Lim pointing out the continued efforts of the Southeast Asia Disaster Relief Insurance Facility and the ASEAN Disaster Risk Financing and Insurance program to create data and resilient funding for the region. “Stronger partnership between the public and private sectors will also be key. The Global Asia Insurance Partnership brings together industry policymakers and academia to undertake research and co-create innovative risk financing solutions to strengthen Asia's resilience against large scale risk,” he said. “Platforms such as this will play an important role in helping leverage our respective strengths.” He also noted climate change to be existential crisis of our generation and that regulators must continue to steer the insurance industry towards greater sustainability while recognizing the unique challenges that the region faces. “In particular, there is diversity in the level and nature of social, economic and industrial development among member states. This means that an approach suited for more developed markets cannot be applied in this region wholesale. It is not practical to expect our member states to suddenly cut their reliance on energy intensive industries, but this should not deter us from taking steps towards achieving an orderly transition to industries that support low carbon emissions and sustainable resource management,” he said. More education programmes launched Also at the Summit, the ASEAN School of InsurTech, Analytics and Innovation was officially opened. An initiative of the ASEAN Insurance Education Committee and endorsed by the ASEAN Insurance Council, the School was conceived by Singapore College of Insurance (SCI) and set up in collaboration with the regional training institutes. Its aim is to align with the vision of the World Economic Forum’s Digital ASEAN launched in 2018, to fully unlock the benefits of the 4th Industrial Revolution, to develop the human capital pool of the ASEAN and to ensure that its citizens have the skills needed to thrive in the digital and technology driven world. Governed by the principles of inclusivity, access and impact, the School has rolled out the ASEAN Certificate in Insurtech 4.0 and the ASEAN Certificate in Data & Data Analytics in English and in multiple ASEAN languages, delivered on an award-winning mobile learning platform. The Certificates offered under the ASEAN Digital Competency Framework (ADCF) developed by the SCI, will stack up towards Graduate Certificates. Digital skills badges will be awarded to recognise the learning achievement at different levels. Visit School at ASEANDigitalSchool.com to find out more. Source: asiainsurancereview.com

Being the third intense storm in the consecutive typhoons to strike the Philippines in 1995, Typhoon Angela, locally known as Typhoon Rosing was a definite catastrophe to remember for the Filipino. With a 10-minute sustained windspeed of 215 km/h or 130mph, Rosing formed in October 25 and dissipated only more than a week later, November 7. Photo courtesy of Reddit Mainly affecting Metro Manila and regions of Bicol and CALABARZON (Cavite, Laguna, Batangas, Rizal, and Quezon), the typhoon took almost 1000 lives in its duration. Catastrophic damage ballooned to 10.83 billion pesos. Photo courtesy of Wikimedia Major power outages were recorded in several regions, affecting almost more than one-third of the country. The 10-minute sustained speed, together with its deadly 1-minute sustained speed 285 km/h or 180 mph, places Rosing in the Philippine list of typhoons to strike with the highest windspeeds. Officially, from the period of 1947 to 2014, Rosing is tenth in the deadly list. The large eyewall was heavily experienced in Naga, where it tumbled down thousands of houses and electric posts. Landslides were also triggered by the flashflood and rainfall. The strongest of Rosing continued havoc for 60 hours, unaffected and unweakened by its landfall. Typhoon Rosing, internationally Angela, is indeed a solid testament to nature's violent fury. We must always stay alert, vigilant, and protected, for its not only our physical properties at stake, but also our lives and futures as well. Sources: https://www.typhoon2000.ph/stormstats/WPF_DeadliestTyphoonsPhilippines_2015Ed.pdf https://web.archive.org/web/20081016092830/http://www.typhoon2000.ph/stats/11WorstPhilippineTyphoons.htm https://web.archive.org/web/20110607011047/http://www.usno.navy.mil/NOOC/nmfc-ph/RSS/jtwc/atcr/1995atcr/pdf/wnp/29w.pdf

Despite earlier announced plans to hold the rescheduled 17th Singapore International Reinsurance Conference (SIRC) as a hybrid event, the organiser, Singapore Reinsurers’ Association (SRA) has decided to run the event in virtual format for a second year. This difficult decision was made in light of a spike in COVID-19 infections attributed to the highly transmissible Delta-variant strain not only in Singapore, where vaccination rates are well over 80%, but also elsewhere across the Asia-Pacific region. “We were very hopeful that the worst was behind us and that we would once again be able to meet up in-person with all our associates and partners from across the world,” said Mr Marc Haushofer, Chairman of the SRA. He added, “We delayed this painful decision for as long as we could but after consulting all our key partners and closely monitoring official announcements on the easing of border restrictions, it became clear that there would not be a sufficient number of overseas attendees for the hybrid event to be viable.” Notwithstanding its virtual format, the SRA is assembling an impressive line-up of speakers and panellists for the 17th SIRC 2021 virtual event, which will be held from 15 to 17 November this year. Heading the illustrious line-up is Guest-of-Honour, Mr Lawrence Wong, Singapore’s Minister for Finance and Co-chair of the Government’s COVID-19 Multi-Ministry Taskforce, who will officiate at the opening session and deliver the Official Keynote Address on Monday, 15 November at 2.00pm Singapore time. Several companies have already signed on as presenting partners to curate sessions that revolve around the theme, “Reinsurance: Quo Vadis?”. Swiss Re is the Lead Partner and will curate a number of sessions including a Fireside Chat with its CEO Reinsurance, Mr Moses Ojeisekhoba. "We are very pleased to support the SRA for the 17th SIRC. The pandemic has presented a chance for the re/insurance industry to reflect on the challenges and the opportunities that lie ahead of us and to consider ways to bring about sustainable change. In that sense, the theme “Quo Vadis?” is very apt as we consider, where are we going?", said Mr Russell Higginbotham, CEO Reinsurance Asia & Regional President of Swiss Re Asia. Gold Partners – Allianz Re and Munich Re – and Silver Partners – A M Best, ICEYE and Lloyd’s – will each host one session each over the three-day conference period, with Lloyd’s Chairman, Mr Bruce Carnegie-Brown confirmed to deliver the Industry Keynote. More details of the sessions and speakers will be announced soon. The 17th SIRC event platform will comprise virtual zones created for the Conference Lobby; Help Desk; Conference Hall; Networking Lounge; Exhibition Hall; and Media Centre, where attendees can navigate seamlessly to attend keynote and panel sessions in the Conference Hall; engage in open chats with fellow attendees; explore Meeting/Exhibition spaces of partner companies or the media partners in the Media Centre. To register click here. For more details on how your company can participate in the event, please contact the SIRC Secretariat team at sirc@sg-reinsurers.org.sg

At the 4th ASEAN Insurance Summit organised by the ASEAN Insurance Council (AIC) and the Singapore College of Insurance (SCI) yesterday, overall winners of the inaugural SCI ASEAN Green Research Hackathon were announced. “SCI’s inaugural ASEAN Green Research Hackathon is designed to crowd-source good ideas and enhance our collective expertise in sustainable finance and environmental risk management. I believe future iterations will continue to catalyse deep discussion and development of innovative solutions necessary to address the growing demand for environmental sustainability. I congratulate the winners for your ideas and proposals and will like to express my deep appreciation to all participants for contributing to a successful hackathon,” said Monetary Authority of Singapore executive director, insurance department and SCI chairman Daniel Wang. The overall winner under the student category for the research category is “Team Westies” from Singapore, comprising fresh graduates on a leadership trainee programme called the Insurance Management Associate Programme (iMAP) organised by the SCI. The team consisted of Desmond Bay Zheng Tian, Nicole Ng Sok Yee, Shruthi M Durai, and Ng Yi Yang. Their research presentation “Green Investment Risks & Insurance Opportunities in ASEAN” discussed how underwriters should incorporate risk factors in their risk pricing. This also includes evaluating and recommending possible hypothetical green insurance products that focus on the risk profile of the ASEAN market while incorporating the fundamentals of different pricing models for these emerging risks. Under the open category for the research category, the overall winner was “Team Panda Warriors”, comprising Eyu Yan Wen, Chan Kwei Feng, Kan Shi Ting, and Chen Mingyang from AIG Singapore. Their research presentation “Integrating ESG in Underwriting” covered a critical analysis of the potential challenges faced by ASEAN insurers to underwrite green insurance products for personal, commercial, and specialty business lines, not to mention the ways these products will enable ASEAN to achieve the United Nations Sustainable Development Goals. In their submission, Panda Warriors stated that the conventional underwriting approach is inadequate for underwriting green insurance due to difficulty in forecasting overall exposure and pricing created by ambiguity in assessing future impact of climate change risks. Still, ASEAN insurers can overcome challenges by adopting digital innovation in underwriting models and active risk management such as parametric and predictive modelling. They added that ensuring the sustainability of green insurance requires a globally coordinated response from both the private and public sectors. ASEAN Insurers can facilitate the ecosystem for idea generation and establish strategic partnerships. As cited by the judging panel, these teams won the research categories as they developed a wide range of tangible ideas applicable in the ASEAN context and displayed appropriate language, referencing, and structure for their research papers. Under the open category for the technical challenge category, the overall winner was a team comprising Tan Sze Won and Lee Kin Hoe from KPMG and Nicholas Actuarial Solutions Malaysia. Their “Nature-Based Greensurtech Solution” used Excel to develop an innovative green insurance product incorporating environmental considerations in its design and execution. They created a solution for crop insurance where funds from the public, private, and government are channelled into a trust, managed by an insurance company. The funds are used to invest in nature-based solutions, which would reduce the impact of climate change and reduce losses from floods for crops. The technological element was incorporated via an Excel tool, which could be developed into an app, for each stakeholder to understand the financial and environmental impact of this nature-based “greensurtech” solution. According to the judging panel, this proposal would have the biggest climate-related impact. The proposal includes the under-represented farming society, bringing stakeholders from the government, NGOs, financial services, and the farmers in shaping a model that would support sustainability and promote a conscious climate change-related action plan. Source: asiainsurancereview.com

Insurance capacity to cover natural disasters is adequately available in ASEAN, despite the region's considerable natural catastrophe exposure. This was stated by Mr Henner Alms, partner at Faber Consulting, who was quoting comments from insurance executives in the region for the ASEAN Insurance Pulse 2021” report, released yesterday by Malaysian Re. Mr Alms, one of the authors of the report, also said that although Nat CAT risks have increased, improved modelling capabilities have allowed ASEAN insurers to allocate their capacity more efficiently. Among the various types of natural disasters, floods have been responsible for more than 45% of accumulated total Nat CAT losses of $137bn since 1990 in ASEAN – well ahead of other hazards such as storms or earthquakes, says the report. Notwithstanding the region’s considerable natural catastrophe exposure, the executives interviewed for this year’s ASEAN Insurance Pulse regard all types of flood risk as insurable in principle. However, insurance penetration remains low and, in particular, the lower income sections of society which are most exposed to the risk rely mostly on government support. "We are seeing an increasing demand for natural catastrophe cover in the ASEAN region," said Mr Zainudin Ishak, president and CEO of Malaysian Re. "Climate change is impacting peoples’ risk perception. They realise that weather patterns are different than in the past, sea levels are rising, coastal flooding increases or that the monsoon season seems to have shifted. While insurable assets have increased as well, clients seek protection from natural hazards. However, the lower income sections of society remain largely uninsured." The ASEAN Insurance Pulse is an annual research publication by Malaysian Re, now in its fifth year. This year's edition focuses on natural catastrophes and flooding. Climate change and urbanisation are expected to further aggravate the frequency and severity of floods and inundations. The impact from heavy monsoon rains is often amplified by drainage systems that are incapable of handling masses of water. The findings of this year's report are based on structured interviews with executives representing 27 regional and international (re)insurance companies, intermediaries, policymakers and trade associations. The interviews were conducted by Faber Consulting, a Zurich-based research, communication and business development consultancy, from August to September 2021. Demand The report says that demand for natural catastrophe protection is high. Customers are aware that they live in a nat CAT-exposed region. The main buyers are commercial entities, while the private sector remains largely underinsured. Across ASEAN, natural catastrophe protection for the private sector is limited due to the low insurance penetration. The cost of insurance and the willingness or ability to pay are the most decisive factors for the purchase of natural catastrophe coverage in the ASEAN insurance markets. Clients are highly cost conscious with a short-lived memory for past losses. Weak enforcement of building codes, flood zones or settlement restrictions also affects insurance demand and risk appetite in the ASEAN markets. On the supply side key challenges are the limited technical capacity in markets with a high natural catastrophe exposure. In addition, the ability to adequately model natural catastrophe risks is still perceived as insufficient. According to the executives interviewed, ASEAN governments are expected to take a more active role in protecting the lower income groups through premium subsidies and public private partnerships. Recommendations range from the introduction of mandatory insurance schemes to improving awareness and education about insurance products or to creating insurance pools and sharing the risks across as many shoulders as possible. The insurability of flooding in the AESAN markets also benefits from sufficient availability of primary insurance and reinsurance capacity at stable rates. Source: asiainsurancereview.com

A new cooperative insurance company shall be allowed to carry out insurance business and be licensed as such if it has a paid-up capital of at least 50% of what is required under the Amended lnsurance Code and subsequent amendments thereto, says the insurance regulator in a circular. The Insurance Commission (IC) notes that currently, the Amended lnsurance Code does not expressly provide for the minimum paid-up capital and the minimum net worth requirements for cooperative insurance companies. It published the circular because “there is a need to clarify the provision of the Amended lnsurance Code insofar as the minimum paid-up capital and minimum net worth requirements for insurance cooperatives are concerned”. The circular took effect from the date of its publication, which was 19 October 2021. Prior to the clarification, the regulations required an insurance cooperative to have a minimum paid-up capitalisation of at least PHP125m ($2.46m). However, the IC says that the requirements on capitalisation may be liberally modified "but in no case may the requirements be reduced to less than half of those provided by rules, regulations, or laws". The IC's circular also says that a new cooperative insurance company's minimum paid-up capital must remain unimpaired but shall subsequently follow the minimum net worth requirement for existing cooperative insurance companies for the continuance of the license. Existing cooperative insurers The IC says that for an existing cooperative insurance company, the minimum net worth shall be as shown in the schedule below: Source: asiainsurancereview.com

Non-life insurance companies shall be allowed to provide agriculture insurance. independently or in collaboration with the Philippine Crop lnsurance Corporation (PCIC), the government agency mandated by law to provide crop insurance to small farmers, says the Insurance Commission (IC) in a circular to general insurers and insurance intermediaries which takes effect immediately. General insurers can also collaborate on agriculture insurance with domestic and international public and private-sector insurers, reinsurers, technology providers and multilateral agencies. At present, agriculture insurance in the country is mostly provided by the PCIC which provides multi-peril crop insurance, which covers losses due to weather, natural calamities, pests and diseases, for various types of agricultural commodities (e.g. rice, corn, high-value commercial crops, livestock and fishery). The circular notes that the insurance penetration rate among farmers is low, ranging at only 8-14% for rice and only 2-6% for corn for the years from 2013 to 2017. Explaining its decision to open up agriculture insurance, the IC says that the development and availability of new technology platforms enable private insurers to more accurately determine the risks associated with agriculture and improve cost efficiency in the delivery of agriculture insurance to farmers located in remote areas. At the same time, the PCIC is willing to share relevant data and information, as well as to provide and share capacity with private insurance companies that would like to provide agriculture insurance, The IC says that private insurance companies recognise and consider the agriculture sector as a new and potential market. Their increased capitalisation enables them to cover catastrophic risks that are usually present in agriculture production and related activities. Non-life insurance companies can apply to participate in a regulatory sandbox to pilot their agriculture insurance offerings. The regulatory sandbox will run for five years to assess how the entry of the private sector in agricultural insurance will affect the sector’s performance and stakeholders. The sandbox is renewable at the option of the lC. Government subsidies received by the PCIC amounted to PHP28.6bn ($564m) in the past two decades, according to Finance Secretary Carlos Dominguez. As the new PCIC board chairman, Dominguez wants the PCIC to work with the private sector in insuring the crops of farmers, as he intends to reduce the agency’s reliance on state subsidies. Definition of agriculture insurance The circular says that "agriculture insurance" shall refer to the insurance of the produce of or assets used in cultivation of crops (i.e. grains, cereals and other crops as well as fruits and vegetables), livestock (i.e. dairy, cattle, hog and beef), rearing, animal husbandry, poultry farming, dairy farming and fisheries including all value chain activities like production, transportation. storage processing, packaging, preservation and marketing. Any insurance product already classified under existing categories of insurance, eg. flre, marine. engineering, shall be excluded from the definition. Source: asiainsurancereview.com

Labor economist Lawrence Katz looks at ‘Great Resignation’ and where it might lead During the earliest months of the pandemic, employers couldn’t downsize fast enough. Millions were laid off, executives took symbolic pay cuts and ordered wage and hiring freezes, and many economists predicted a grim year ahead for workers hoping to just get their old jobs back, never mind get ahead. Eighteen months later, U.S. employers are struggling to fill 10 million jobs and many of those same workers are looking at the offerings and saying, “No, thanks.” Since April of this year, Americans have quit their jobs and not returned to the workforce at a historic rate, an exodus some call “The Great Resignation.” According to the latest U.S. Bureau of Labor report, 4.3 million quit their jobs in August, 242,000 more than in July. The monthly quit rate hit a new high, at 2.9 percent. Though quitting is happening across all job sectors and among workers at all skill levels, it was up in August in hospitality and food services, wholesale trade, and in state and local education. Lawrence Katz, the Elisabeth Allison Professor of Economics at Harvard, is a labor economist who analyzes earnings inequality and the effect that education has on living standards. Katz spoke to the Gazette about why this is happening and whether it could represent a major power shift between workers and employers. Interview was edited for clarity and length. Q&A Lawrence Katz GAZETTE: What’s going on? Have we seen anything like this before? KATZ: We haven’t seen a quit rate this high since 2000, when the U.S. Bureau of Labor Statistics began the current Job Openings and Labor Survey data series. Last month was the highest quit rate that we’ve observed in the JOLTS data. There’s a monthly survey of a random sample of employers in the U.S. They’re asked, “In the last month, how many workers who were working here last month are no longer working,” and they’re asked the reason. There are three reasons. A worker can voluntarily quit. They can be laid off or fired. And there’s a smaller miscellaneous category called other separations, which is largely announced retirements. Historically, people are much more willing to quit their jobs when there are a lot of job openings. And what we’re seeing is a record level of job openings. Employers are looking for a lot of people to fill jobs and we clearly see in the data that expenditures by consumers, for a wide range of consumption products, are very, very high. People delayed a lot of consumption during the pandemic. So, there’s huge demand. We’re also seeing inflation take off a bit with shortages in these areas. A large number of workers lost their jobs in the pandemic and some are hesitant to come back to the labor market. We also have disruptions to the supply of temporary and seasonal workers through increased restrictions on immigration and work visas. And when there are a lot of outside opportunities, people are much more willing to take a chance on leaving their current job. GAZETTE: So these “quitters” are not simply retiring and they’re not just job-hopping. Are they between jobs or are they done with the rat race entirely? KATZ: The quitters are not really leaving the workforce. What happened is a lot of people lost their jobs early in the pandemic and a lot of them have not come back, especially when they haven’t had the opportunity to come back to their previous jobs. What’s puzzling, relative to the historical data, is the slow movement of people who have been unemployed for a while back into employment, given how many job openings there are. The number of people who switch from one job to another is what you would predict given the great opportunities. It’s always been true that people who switch jobs tend to get higher wage growth than people who stay put, but it looks unusually high right now — about 2 percentage points over the last. So, there are very strong economic incentives to change jobs — that’s the first reason. But a second issue — we see a lot of anecdotal and survey data on this — is, I think we’ve really met a once-in-a-generation “take this job and shove it” moment. GAZETTE: What’s driving that? KATZ: There’s no perfect way of measuring these types of factors. But what we do see is a lot of people asking about getting remote work, for example, and a lot of people questioning low-wage, high-turnover situations, and employers starting to respond, but pretty slowly relative to the expectations of workers. The other reason why this is a “take this job and shove it” moment for a lot of workers is their financial situation is much better than it was coming out of the Great Recession, with the expansion of the social safety net and the stimulus payments during the pandemic period. Upper­-middle-class and well-off people are doing quite well with the stock market boom and have saved a lot. But even people in the bottom two quartiles of the income and wealth distribution are in much better financial situations than in previous economic recoveries, so we’ve seen a slow return from unemployment given the job openings. Having a stronger safety net and having built up some savings means people can put more weight on their caregiving responsibilities, or can look for something better. They can invest in a training or another program that they might not have been able to do in the past. Whether this is a temporary phenomenon or whether this is truly a once-in-a-generation change in labor activism is an open question. But the number of strikes we’re seeing and workers willing to protest, whether it’s Hollywood production crew workers, John Deere employees, or Harvard graduate students, is very high relative to where the unemployment rate is at. So, I think there may be something more persistent here. “I think we’ve really met a once-in-a-generation ‘take this job and shove it’ moment.” GAZETTE: Costs for necessities like food, shelter, and cars are still going up. Does that put any pressure on employers to raise wages to retain workers, particularly with the hiring gap in the background? KATZ: I think the combination of the high inflation with the fact that workers have a lot of outside options and are a little better off financially will put pressure on employers to raise wages to keep workers. Jumps in inflation always put a little pressure to keep the real value of things, but that by itself wouldn’t be strong enough. It’s the combination of a tight labor market with that. And workers really will need substantial wage increases to keep up with inflation. These are quite unprecedented times in the whole range of the pandemic-related health situation and disruption and the temporary inflation. There’s not a good historical record to look at this one. We haven’t had a jump in inflation like this in decades, and we’ve never had one, in our living memory, related to pandemic shortages. GAZETTE: Are we in a reset period, where employees and employers are reassessing the terms of engagement? KATZ: Yes. I think a lot of employers are surprised at how many workers have balked at coming back to the office, the restaurant, or other workplaces. What I don’t know is whether employers can hold out and try to restore the pre-pandemic bargain more favorable to employers than to workers. The longer people stay out of work, the more their finances will go down, and they’re not going to get stimulus checks again. Maybe workers can hold out for six months and then the world will go back to the way it was before the pandemic. Or maybe the current moment reflects a permanent change in people’s values and a change in their willingness to withhold labor supply, individually and collectively. We’ve also been seeing a spurt in union organizing successes for a wide range of professional and technical workers over the last couple years and into the pandemic at places like the Urban Institute, MDRC, and the Brookings Institution, where the employers have voluntarily recognized staff unions. Using collective clout to improve pay and working conditions may be an increasingly important way for workers to make progress in the labor market. That could be a major change in the balance. A lot of it is individual decisions, but a lot of it is workers acting collectively now in a way that we haven’t seen in decades. Source: news.harvard.edu