Does quitting have a bad rap?
When it comes to the job market, quitting is happening more these days than at any time in the past several years. We tend to associate quitting with giving up or giving in, so you may be surprised to learn that economists are very happy when people quit.
This might be a good time to consider why economists like it when you quit your job, and how you can make quitting work for you.
Why economists like it when you quit
The Bureau of Labor Statistics measures the rate at which people quit their jobs, and lately the year-over-year average of this quit rate has been 1.9 percent. That is the highest it has been at any time since the Great Recession. Economists generally view a rising quit rate as good news for two reasons:
It's a sign of a healthy job market. People are more likely to quit if they feel likely to find a new and better job. Only when the job market is weak do people cling onto their jobs even when they are dissatisfied.
It creates upward wage pressure. One lingering concern during this economic recovery has been that inflation is too low, reflecting a lack of pricing power and creating no incentive for consumers to buy now rather than later. Higher quit rates create upward wage pressures because, in many cases, a higher-paying offer was the impetus for quitting and the job opening created when someone quits represents more demand for workers.
So, economists have no problem seeing the good side of quitting. However, in order to make it work for you, it is important to quit in the right way.
Making quitting work for you
Finding the good side of quitting depends on whether you improve your situation as a result and don't endanger your finances. Here are some ways to make quitting work for you:
Take some time off first. Your impulse to quit may be a sign that you need a break. Before you commit to quitting, take some time off. This will give you time to think, and help you avoid making a decision in the heat of the moment that you may later regret.
Identify what you wish were different. Unless you want to end up with the same set of problems in your next job, you need to identify specifically what you would like to change.
Line up a place to land. Start checking out the job market and going on interviews. Best case, this might help you get a better job lined up before you quit. Worst case, it will be a reality check on whether or not the job situation you seek actually exists in today's market for someone of your skills.
Approach your current employer with any solvable problems. Your relationship with your current employer may be beyond repair; but if there is just a specific problem that is bothering you, perhaps it can be solved. This may be anything from feeling you deserve more pay to wanting to eliminate a particular aspect of your job duties. If you have been a good employee, your employer might appreciate the opportunity to accommodate your request rather than to lose you altogether.
Evaluate the total package. People naturally tend to compare salaries when weighing job offers, but there is a bigger picture than that. The value of benefits — health care coverage, retirement plan contributions, life insurance, etc. — can add up into the thousands. You cannot properly evaluate the economics of making a change unless you consider the full compensation package.
Consider your savings reserves. Again, it's best to line up another job before you quit, but if this is not possible, at least first look at your savings to see how long a period of unemployment they can support. Otherwise, if you put yourself in a position where you are caught short financially, you may find yourself forced to take a job that is worse than the one you quit.
Assess your other income sources. Any change involves some risk, but that risk is mitigated if you are in a two-income household. However, it does not cushion the risk much if the other income involves a shaky job situation or is minor compared to what you make.
Look ahead to any upcoming loan needs. If you are thinking of buying a home or otherwise applying for a loan in the near future, it may pay to do so before you quit your job if you are confident in your ability to secure new employment and repay the loan. Lenders may regard someone who has just changed jobs as a greater risk.
We tend to see quitting as an emotional decision, a cathartic release of frustration. It shouldn't be. Quitting may be the most important financial decision you ever make. As such it should be made calmly and analytically — with some room for an emotional celebration if you get it right.
What is your strategy for a change of employment? What is the minimum/maximum savings needed to bridge the gap in employment, and how do you assess the total employment package?
Richard Barrington, CFA, is a 20-year veteran of the financial industry, including having served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc.