Matt Cameron wrote a good post yesterday about the toll of high unemployment on the employed majority. When the economy’s at or near full employment, then quitting your job is a very credible threat. You, as a worker, have some real leverage over your employer that lets you bargain for better wages or working conditions or find them elsewhere. When unemployment’s at 9.1 percent, it’s a very different world. Unless you’re Dwight Howard, you need your job more than your boss needs you.
Something else to think about is the impact of this no-quit economy on broader economic performance. Some entrepreneurs are guys like Bill Gates or Mark Zuckerberg who start their company right out of school. But I believe the more typical scenario is for someone to be in the labor force for years, compiling savings and getting skills, and then deciding one to quit a meh job at a blah firm and try to strike out on his own. This is, obviously, always going to be a risky undertaking. In particular, a would-be entrepreneur tends to stand to lose a lot of his savings. But in a healthy economy, you can quit your job to start your own business with a reasonable amount of confidence that even if things go sideways you’ll be able to return to your old profession and go back to work. With unemployment at 9.1 percent, you really need to think twice about that assumption. The downside risks become enormous, so fewer people do it, so incumbent firms face less competitive pressure and we overall have less innovation.